
Glass _MS3__\n_A 

Book.__^ L:l 

Co^glrtF 



CQPsaiGm DEPOSIT. 



I 



The Chautau(iua Literary and Scientific Circle. 



STUDIES FOR 1889-90. 



An Introduction to Political Economy. Ely $t oo 

Bible in the Nineteenth Century. Townsend 40 

How TO Judge of a Picture. Van Dyke 60 

Outlike History of Rome. Vincent and Joy 70 

Physics. Steele i 00 

Preparatory and College Latin Course in English, i vol. 

Wilkinson i 30 



\ . 



AN INTRODUCTION 



TO 



POLITICAL ECONOMY 



RICHARD T. ELY Ph.D. 

Associate Professor of Political Economy in Johns Hopkins University 






_c-r>ffiii>-) 




NEW YORK 

CHAUTAUQUA PRESS 

1S89. 



^^A'^ 



The required books of the C. L. S. C. are recommended by a Council 
of Six. It must, however, be understood that recommendation does not 
involve an approval by the Council, or by any member of it, of every 
principle or doctrine contained in the book recommended. 



Copyright 1889, by Hunt & Eaton, 805 Broadway, New York. 



PREFACE 



It has frequently been doubted whether the present is the 
best time for the preparation of a text-book of political 
economy, and it has been said that the attitude of mind 
which should characterize the political economist under ex- 
isting circumstances is one of " pause and retrospection." 
There is active dispute concerning fundamental conceptions, 
and when one listens to the controversies now going on the 
impression is apt to grow on one that in political economy 
nothing is settled. Topics as important as wages, rent, and 
profits are now under active discussion by scholars who hold 
widely divergent views. It is true that in reality many 
things are tolerably well settled in political economy, and 
that progress in the science was never so rapid as now; but 
precisely this hopeful outlook for the future renders the 
preparation of a text-book at present difficult. 

Tlie author's experience as a teacher and a writer has 
convinced him that brief economic manuals have in the past 
done immense harm. They have conveyed little positive 
knowledge, but they have provided their readers with a lot 
of catch-words and simple "rules of thumb " for the solu- 
tion of the various socio-economic problems which arise in 
our complex modern industrial civilization. Tliey have thus 
turned the minds of a multitude of half-educated persons 



/-■ 



,-/ 



4 PRE FA GE. 

away from the careful observation of the phenomena of 
actual life, and have shut their eyes to truths easy enough 
of perception. 

Reflections like the foregoing could not fail to occur to the 
author when he was requested to prepare a brief text-book 
of political economy, which, while designed primarily for the 
Chautauqua Literary and Scientific Circle, should at the same 
time be suitable for use in schools and colleges and for gen- 
eral reading. It seemed to him very clear what ought to be 
done. Many things must be passed over and left for fur- 
ther discussion in monographs by scholars before they are 
included in an elementary text-book. Nevertheless, a gen- 
eral survey of the field is important. If special questions 
are studied without the previous, or, at any rate, subsequent, 
perusal of an outline of the entire science, the sense of unity 
is lost. A framework is needed in order that special topics, 
like taxation, labor organizations, socialism, may be con- 
veniently placed within it. 

The intention of the author has, then, been to wi'ite a work 
descriptive rather than logical, and the ordinary distribu- 
tion of space in text-books has been abandoned. More than 
one third of the book has been occupied with a description 
of the growth and characteristics of industrial society and 
an exposition of the nature of political economy. Many a 
person has read through a text-book of political economy 
without knowing what political economy really means. It 
has been the aim of the author to make, at least, the true 
significance of political economy apparent. 



PREFA CE. 5 

The character of the work and the strictly limited space 
have led the author reluctantly to omit many topics. It has 
been thought better to write something suggestive, and iu 
keeping with the spirit of the book, about a comparatively 
few topics than to attempt to say a word in didactic style 
about every topic which comes under the general subject of 
political economy. 

The book is called an Introdaciloit to Political Econ- 
omij. It is hoped that this work will interest its readers, 
will excite curiosit}'', will open their minds, and will thus 
lead them to continue their economic studies, lor which 
suggestions are given in one of the parts into which the 
work is divided. The impression which it is desired that 
this book shouhl leave is something like this: "Political 
economy is an interesting and most important branch of 
human knowledge. I now see what it is all about, and hav- 
ing surveyed the field I propose to take up special questions, 
like taxation and the labor movement, and study them care- 
fully. I do not feel so much that I really know a great deal 
about political economy as that I am now in a position to 
learn something." 

The author's indebtedness to various anlliors is sufficiently 
acknowledged in references throughout the book. It may 
be, perhaps, proper to say that he is especially indebted to a 
treatise of Professor Schonberg, several times mentioned, 
in the preparation of that part of the present work which 
deals with the development and characteristics of economic 
society. 



e PREFACE. 

At the close of the chapters references are frequently 
given to works which will still further elucidate the topics 
therein treated. 

The author has felt so keenly the responsibility which 
rested upon him in preparing a text-book for the truly 
immens'e Chautauqua public that he has asked Professor 
Franklin H. Giddings, of Bryn Mawr College, to read his 
manuscript and proofs, and Professor J. B. Claik, of Smith 
College, Professor Woodrow Wilson, of Wesley an Uni- 
versity, and Professor Amos G. Warner, of the University 
of Nebraska, to read the proofs. For the suggestions and 
encouragement received from these gentlemen he is deeply 
indebted, and he wishes here to express his thanks. The 
author is also indebted to Mr. John R. Commons, one of the 
most gifted members of his graduate class, for assistance of 
many kinds given during the preparation of the present 
work. 

All persons whose interest is specially awakened, leaders 
of circles and teachers who use the book, unless they have al- 
ready enjoyed thorough instruction in political economy, will 
find it to their advantage to take the correspondence work 
in political economy in the Chautauqua College of Liberal 
Arts, about which the registrar. Professor Frederick Starr, 
of New Haven, Conn., is always ready to give information. 

RiCHAKD T. Ely. 

Johns Hopkins University, Baltimoke, February, 1889. 



CONTENTS. 



♦♦♦ 

PART I. 

THE GROWTH AND CHARACTERISTICS OP INDUSTRIAL SOCI- 
ETY, AND THE NATURE OF POLITICAL ECONOMY. 

PAGE 

chapter i. 
Preliminary Remarks ox Political Economy and Sociology 13 

chapter ii. 
Isolated and Social Economic Life 19 

CHAPTER in. 

Certain Special and Elementary Characteristics of the Eco- 
nomic Life of a People 26 

chapter iv. 
The Two Great Factors op a National Economy 31 

chapter v. 
The Economy of a Nation an Historical Product 35 

chapter vi. 
The Stages in the Economic Development of Civilization 39 

chapter vii. 

Economic Stages Viewed from the Stand-point of Production and 
from the Stand-point of Transfers of Goods 42 

chapter viii. 
A Few Main Causes for the Existence of Present Economic Prob- 
lems 55 

chapter ix. 
Some General Fe.vtures of the Economy of the Modern Nation.. 71 



8 CONTENTS. 

PAGE 

CHAPTER X. 

Political Ecoxomy Defined 94 



chapter xi. 
Othee Definitions of Political Economy 105 

chapter xii. 
Main Parts of Political Economy Ill 

chapter xiii. 
Economic Methods 116 

chapter xiv. 
Economic Laws 124 

chapter xv. 

A Few Remarks on the Utility of Political Economy, with 
SOME General Considerations on the Relation of Political 
Science to other Sciences 128 



PAR.T II. 

PRODUCTION 

chapter i. 
Introductory 143 

chapter ii. 
Motives of Economic Activity 151 

chapter iii. 
The Factors of Production 160 

chapter iv. 
Organization of the Productive Factors IGS 



CONTENTS. 9 



PAGE 

PART III. 

TRANSFERS OF GOODS. 

chapter i. 
Introductory 177 

chapter ii. 
Money 184 

chapter hi. 
Credit and the Instruments of Credit — Banks and Clearing 
Houses 196 

chapter iv. 
The Regulation of International Commerce 204 



PART IV. 

DISTRIBUTION. 

chapter i. 
Introductory 213 

chapter ii. 
Wages and the "Wages System 221 

chapter iii. 
Labor Organizations 228 

chapter iv. 
Peofit-Sharing and Co-operation 235 

chapter v. 
Socialism 240 

chapter vi. 
Monopolies 249 

chapter vii. 
A Few Additional Remarks on Social Problems and Remedies 
for Social Evils 259 



10 CONTENTS. 

CONSUMPTION 



PART VI. 

PUBLIC FINANCE. 

chafhter i, 
Introductory 287 

chapter ii. 
Taxation 299 



PART VII. 

THE EVOLUTION OF ECONOMIC SCIENCE. 

chapter i. 
Introductory 311 

chapter ii. 

Economic Ideas in the Ancient World and the Middle Ages. . . 314 

chapter iii. 
Economic Ideas in Modern Times 315 



PAPT VIII. 

A FEW SUGGESTIONS FOR STUDY AND COURSES OF READING. 



APPENDIX. 

1. Questions and Exercises 335 

2. Bibliography 344 

Index 349 



PART I. 



THE GROWTH AND CHARACTERISTICS OF IN- 
DUSTRIAL SOCIETY, AND THE NATURE 
OF POLITICAL ECONOMY. 



CHAPTER I. 

PRELIMINARY REMARKS ON POLITICAL ECONOMY AND SOCI- 
OLOGY. 

Some writers have been inclined to discard formal defini- 
tions of sciences as unprofitable. An entire scientific treatise 
is nothing but an expanded definition. A text-book of 
physiology is nothing but an answer to the question, " What 
is physiology ? " The pi-esent work is a similar endeavor to 
answer the question, "What is political economy ? While 
conscious of the imperfections of definitions, particularly 
when placed at the beginning of a treatise, the student finds 
it an advantage to have described to him, in advance, in 
rough outlines, at least, the field which he is about to in- 
vestigate more minutely. We will attempt to frame some 
kind of an idea of political economy, and of that larger 
branch of knowledge of which it is a part, at the outset of 
our studies, and will then later return to a more detailed 
description of the nature of political economy. 

Political Economy a Part of Sociology. — Political 
economy is a social science, but it is not social science in its 
broadest sense. Another name has been reserved for that 
larger branch of knowledge, and that is sociology. Political 
economy is a part of sociology. Sociology deals with all the 
phenomena of society ; that is to say, with all that concerns men 
living together and having certain necessary, agreeable, and 
desirable relations with one another. It does not deal with 
individuals as such. It does not tell us something about John 
and Henry and Robert and George, Susan and Jane and Sarah 
and Mary as separated, isolated pei'sonalities, but it treats 
them and other human beings as members of an organiza- 
tion, and that organization is called society. 



14 AN INTRODUCTION' TO POLITICAL ECONOMY. 

The fact of the necessary relationshijj of human beings to 
one another is brought out in a thousand ways in the lan- 
guage of every-day conversation. When we say "human 
beings " we separate men from other beings, and imply a 
common tie in humanity. This idea is brought out still 
more clearly when we speak of others as our fellows. With- 
out dwelling upon words which imply this intuitive feeling 
in various grades of intensity, it may be remarked that 
Christianity offei'S us our highest conception of a society 
which embraces all men, and in that conception sets us a 
goal toward which we must ever move. The fatherhood of 
God and the brotherhood of man are the expressions of this 
relationship. Human progress can never pass that goal, for 
it satisfies the highest aspirations of which we are capable. 

Society an Organism. — As a first step in the study of 
sociology, and in that branch of sociology called political 
economy, it must be clearly understood that society is an 
organism; that is to say, it is composed of interdependent 
parts performing functions essential to the life of the whole. 
Society expresses a will in various ways, and particularly, but 
not solely, through government, and it finds methods for the 
execution of its purposes. Society punishes those who offend 
it and violate its well-known desires, and this punishment as- 
sumes almost infinitely varying degrees of severity, includ- 
ing even torture, disgrace, anS death. At the same time 
society differs from many other organisms in the fact that 
its separate parts are themselves organisras, and that each of 
these parts has a purpose and a destiny of its own. Society 
is composed of individuals, but individuals find their true 
life in society. 

Sociology Defined. — Sociology is the science which deals 
with society. It may be more proper to say the group of sci- 
ences, as sociology, at present, is only developed in parts, and 
these parts have as yet scarcely been connected into one whole. 
Sociology is identical with social science properly understood, 
but the term social science has unfortunately been used in 
a narrower and less correct sense. Social science has been 



PRELIMINARY REMARKS. 15 

used as equivalent, to that branch of knowledge which is 
concerned with tlie proper treatment of the dependent, delin- 
quent, and criminal classes. What propriety there can be in 
restricting social science, or the science of society, to a con- 
sideration of the lowest and most unfortunate classes of soci- 
ety is not apparent. 

Sociolo^_deals with social phenomena, and §o_doiia_p.Qlitc: 
ical ecouoiuy ; but probably all readers of this work instinc- 
tively feel that the two are not identical. When we open a 
treatise on sociology we are not sui-prised to see an exhaust- 
ive treatment of the social phenomena of religion, of intem- 
pei'ance, of marriage, nnd of divorce, but it can hardly be 
necessary to say that in themselves these things do not belong 
to political economy. The political economist may very 
properly have more or less to say about these topics, but he 
does not get at them directly, but only indirectly, as bearing; 
on other phenomena or as themselves affected by other social 
forces. The entire life of man in society is truly one, but it 
is so groat, so complex in all its almost infinite variety of 
manifestations, that it seems necessary to separate it into 
parts by more or less artificial lines ; not that any part has 
an independent existence, for each part affects vitally every 
other part, but that in this manner we accommodate things 
better to the limited powers of man's intellect. 

The Depa,rtmerLts of Social Life. — Dividing the life of 
society or of a people organized as a politically independent 
society into parts, we may call these parts territories of social 
life, or departments of social life, or we may use the expres- 
sion social life-spheres. Eight great departments of social 
life have been enumerated; namely, first, laiigiiage; second, 
art ; third, science and education ; fourth, the family life ; 
fifth, soci al life in the narrower sense, tliat is, the intercourse 
of friends and associates as seen in entertainments, parties, 
and meetings of various kinds, the interchange of ideas and 
courtesies; sixth, rel igious life ; seventh, political life; 
eighth, economic life. The economic life means briefly that 
part of man's life which is concerned with what is commonly 



16 AN INTRODUCTION TO POLITICAL ECONOMY. 

called "getting„a,,liviri^," Now it is with this eighth great 
fundamental life territory of a people that political economy 
has to do, and we must examine its character. 

Relation of Economic to other Life-Spheres. — But 
the I'eader must iirst be warned that the scope of our science 
is neither small nor insignificant because we have excluded 
so much, and more especially beo^-use we have excluded the 
higher life-spheres of society. Our department touches all 
others, modifies and conditions all others, ought to subserve 
all others, and in studying it we are examining those things 
which are fundamental, those things which serve as an indis- 
pensable basis for the highest flights of the soul in art, 
music, and in religion. There is scarcely a phenomenon of 
society, perhaps none at all, which does not come sooner or 
later within the range of the economist's discussion, although 
he arrives at all from his own peculiar starting-point. 

The Present Condition of Sociology. — Attention must 
also be called to the fact that we are about to consider one 
of the most fruitful fields of sociological inquiry. Sociology 
as a whole is so vast a subject that comparatively little prog- 
ress, it must be confessed, has been made in its prosecution. 
This will undoubtedly be different in the future, but the con- 
dition of sociology is rather disheartening at present. Only 
few men have done valuable work as sociologists. The 
French^ philosopher, Augus te Comte, who lived during the 
first half of this century, is often called the father__Qf.- soci- 
ology, and undoubtedly in his Po0A3)£uJBhiki&Qphy and other 
works he has made valuable contributions to sociological 
knowledge, and still more valuable contributions to socio- 
logical method. His greatest. sea'v ice was, however, the im- 
jiujse which he gave to sociolo.g,ical-st.udies, and this impulse 
is s^iULfelt. The disejples-of Auguste Comte are called PosL- 
tivists, and are found chiefly in.France and England, but his 
influ^ence,_trans£i5ndm^ the sphe of his own followers, has 
touched all modern students of sociology. 

Seve]-al German writers have attempted work in the 
broad field of sociology, of whom, perhaps. Processor- Albert 



PRELIMINARY REMARKS. 17 

Schaffle is most distinguished, Scliiiffle is the author of a 
great work, in foiir_voh;raes, called The Strjicture and LjJjQ 
of t he So ciaLJlad.y . It is erudite, but suggestive rather than 
exliausti_£e. 

H erbert Sij eiis.ftr is the be at kno wn E ngiislLS_QClologis t, and 
in his various works, Stu dy -o f Sociologi/ SociciL„Statics, 
Princi^leA. of^Miol.ogy, and others, he has covgreil a wid^; 
field, but for the mQsl-PiLt^saiiCxfifiially, and especially su- 
perficial are all those parts which treat of economic lile and 
institutions. While it is not too much to call some of his 
speculations crude, in their dogmatism and blindness to the 
facts of social life, it must be admitted that he lias rendered 
distinguished service to the study of sociology in the work 
which he has mapped out for others to do, and in ihe veiy 
considerable interest in sociological inquiries which he has 
awakened both in England and xAra erica. 

One part of sociology, that which deals with the gro\vth 
of_society, has been ably treated by an American, Professor 
Lester^ FJVlard, in his I) ynaim^ Sociology, a work in two 
stout volumes. 

This may not exhaust the list of sociologists, but these 
four names include the principal sociologists, and in reading 
their works, while making full and frank acknowledgmcnL 
of their erudition, patient research, and ability, it must be 
confessed that the impression left by all is that of work un- 
finisheil, of work, in fact, scarcely more than begun, and of 
work of very uneven excellence. They are men who are 
feeling their way, and who, like other explorers, often stum- 
ble and fall. Suggestion and impulse describe the debt we 
owe to sociologists. 

Political Economy the Best Introduction to Soci- 
ology. — Political economy, on the other hand, is a science 
v/hich is making rapid progress at the present time, and men 
young and old, but principally young men, in all civilized 
lands, particularly in Italy, Germany, England, and the 
United States, are devoting themselves to its advancement 
with ardor justified by results already achieved. While it is 



18 AN INTRODUCTION TO POLITICAL ECONOMY. 

recognized that political economy has not long left behind 
the period of infancy, that a great deal of what passes under 
that name is crude and imperfect, it is safe to say that it is 
to-day in a most hopeful condition, and that at the present 
time political economy is the best introduction to the various 
social sciences embraced under the general name sociology. 



Read F. H. Giddings's Socioloyij and Political Economy. 



CHAPTER II. 

ISOLATED AND SOCIAL ECONOMIC LIFE. 

The_E£Q]iamiil_.Ijjie. — It is not difficult to understand 
what is meant by economic life, as the mention of a few ele- 
mentary facts explains it. Man ha^ wants which must be 
satisfied in order thj^ia^may. lixfi.<jat all, and other wants 
which must .be satisfied in order that he may liye worthily, 
and still other wants the gratification of which ministers, to 
vanity or other evil traits of human character. These wants 
of man are of the most diverse kinds. Some, can.be satisfied 
h$ tangible, materijiL-thiags, othei^s^onjy, with immaterial or 
nouj^orporeal goods. Man is consj^ntly^ striving to satisfy 
his wants in order to prom qte__hj^ welfare or to increase his 
happiness in some way. In so far as he is engaged in_efforts 
to^eciire material goods for the satisfaction of his wants, we 
may speak of his ^activity as QConomi.c, and the regular suc- 
cession of tliese efforts we may call his economic life, jiist as 
we may call efforts and experiences of another soi't his relig- 
ious life. "In so far as the activity of man is directed to 
the acquisition of material things for the satisfaction of hu- 
man wants it is called economic, and, . . . like any other 
human activity, it is conditioned in its manifestations by the 
nature of man and by his historical development." * 

It is to be noticed that this a ctivity is of two k inds ; 
namely, first, in the accjiiisitlpn, s econ d in the employment 
of material jneans. 

Isolated Economic Life. — The economic activity of man 
may be isolated or it may be social. It is exclusively or even 
chiefly the first only in the earlieststages of human dovelop- 

* Schonberg, in his Uandhucli dtr PoKtischen Oekonomie, Bd. i, S. 4, 2te 
Autlage. 



/ 



20 AN INTRODUCTION TO POLITICAL ECONOMY. 

ment. Possibly it is neveoincily.iaQlate,d, because neither 
in history nor in accounts of the experiences of contemporary 
travelers and explorers do we find human beings liviug solely 
in and for themselves. The beasts of the field are not alto- 
gether isolated in their efforts to obtain food, nor in their 
consumption of it, although they differ considerably amono- 
themselves in this respect. Q^he lowest of the human race 
resemble most closely beasts in the individualism of their 
economic \\iQ.} 

Homer has described the economic isolation of barbarians 
in these lines, which refer to the Cyclops: 

'■ No laws have they, they hold 
No councils. On the mountain heights they dwell 
In vaulted caves, where each one rules his wives 
And children as he pleases ; none give heed 
To what the others do."* 

It has been said that the wild men of Australia never co- 
operate with one another in their economic efforts, and the 
individualism of the blacks of "the heart of Africa" has 
been described by Professor Drummond, in his work, Trop- 
ical Africa, to be such that in some districts t hree natives 
cannot be sent.with a messjage, for in that case two of them 
would corobine and sen_the jLtod before they return. Sir 
John Lubbock uses these words of savages in general : "The 
savage is always suspicious, alway^in danger, always^on the 
wg,tch. He can depend on no one, and no one can depend 
on him. He expects nothing from his neighbor, and does 
unto othei's as he thinks they would do unto him. Thus his 
life is one prolonged scene of selfishness and fear." f 

While we do not find individuals living a strictly isolated 
economic life, we do discover families or households organ- 
ised as isolated economic units, and the faijaily in one shape 

|yQQther is prqbably the first social unit. No opinion is 
expressed as to the particular form of family which first 

* Tlie Odyssey^ Bk. ix, 1.S6-140, Bryant's translation. 
f Prehistoric Times, chapter xvi. 




ISOLATED AND SOCIAL ECONOMIC LIFE. 21 

arose. It is simply ineSnt to state it as probable that any- 
life of man preceding the existence of some institution vvliich 
may be called the family could noL have been social ; that 
where we find society, there we find the family as a unit, 
though, of course, lar ger compo site units, as tribes, etc., may 
exist above the single family. We find in history, and we 
discover in the records of travelers, an economic activity of 
the family which we may call relatively isolated. It begins 
and ends in itself. Products are gathered from nature, and 
these are used direcdy, or after their form has been changed, 
to satisfy the wants of the various members of this economic 
unit. But this is the case only in early times or among peo- 
ple in an early stage of development. Probably even in 
this relatively isolated economic life, economic goods were 
exchanged occasionally by families, and thus a social eco- 
nomic life was begun. Nevertheless, the progress was slow, 
and a condition of relative isolation lasted for many centu- 
ries and has continued on a large part of the globe up to the 
present day. 

SocialEconomic Life. — Modern civilization has, how- 
ever, produced rapid changes, and it may be said that 
the economic activity of civilized man is, to-day, chiefly 
social. The greater part of what is produced in our indus- 
trial centers is not for the consumption of the producer, but 
is destined to satisfy the wants of others ; while the wants 
of the producer are satisfied by what others give in ex- 
change for his products. If the reader goes to Gloierai^'ille, 
in New York State, he will find people engaged solely in 
the production of gloves^ who seldom, and perhaps never, use 
a glove of their own making; if he goes to Westfield, Massa- 
chusetts, he will find men manufacturing horsewhips who 
never have occasion to use a whip they have made; if he 
goes farther east, to Haverliill, Lynn, Spencer, Natick, Marl- 
boro, Brockton, or Worcester, in the same State, he will see 
almost the entire labor of thousands of human beings, young 
and old, men and women, expended in the marvelously rapid 
production of bo ots and sh oes — and not merely that, but in 



22 AN INTRODUCTION TO POLITICAL ECONOMY. 

each place chiefly in the production of one^kmd of foot- 
wear, as won icn's and .misses' fine shoes in Lymi and_JH[a.v- 
erhill, men's medium and finejho^s in Brockton, heax^JiiiGts 
in Spencei", brogans and men's heavy coarse shoes in Natick, 
and heavy boots and shoes of coarse grades in Marlboro — 
yet he will doubtless find, on inquiry, that a considerable 
portion of these working-men and working-women, and of 
these capitalists with whom they join their forces, have never 
worn a boot or shoe on which they have labored. The same 
thing holds true, though to less extent, in agriculture, and- 
cotton-planters in the South often obtain nearly every thing 
which they use in exchange for cotton; wheat-growers in the 
North-west frequently procure most of the economic goods 
consumed by their families by means of purchase, and it is 
probable that in a near future grape-growers along the shore 
of Lake Erie, in Chautauqua County, New York, will j)rocure 
nearly all the commodities which they use in exchange for 
grapes. There is, in fact, as we shall see in the progress of 
our studies more clearly, a unity in the economic life of a 
civilized people, but not as yet a unity in the economic life 
of humanity. We may thus speak of the economic life of 
the American people, of the German people, of the French 
people. The economic life of a politicjilly oi'ganized inde- 
pendent people is often called a ^latioxLoL - econamy ; as the 
national economy of the Italians. We cannot as yet speak 
of the economic life of the world as a unity, or as any thing 
other than the sum of several unities, although economic 
interrelations among various nations are rapidly extending. 
These interrelations we may call economic internationalism, 
and it is possible that this will grow until we have a real 
world economy. 

Prodnctive Elements Often Overlooked. — It is nec- 
essary nt this point to call attention to some important 
facts which are frequently overlooked. A large part of 
■ production even now is household production, as it may be 
called, and is not designed for the market-place, which in- 
deed takes no note of it. Every well-regulated household 



ISOLATED AND SOCIAL ECONOMIC LIFE. 23 

is an establishment where valuable things or quantities of 
utility are produced. Food is prepared for use, and pre- 
pared food is wortli far more than unprepared, as we dis- 
cover when we purchase it at a boarding-house, restaurant, 
or hotel. Often the prepared food sells for more than 
twice the cost of the unprepared food. But other utilities 
are produced in the household. Clothing is prepared and 
repaired, comfortable shelter Js afforded, and strength of 
boily and mind of the chief productive factor, the human 
being, is nourished. It has been claimed that the la bor of 
at least half. of the women of a country "is expended in 
produdjig material gooi things for the use of the produc- 
ers."* Now it is a fact that moi^e than ^half of the human 
r ace in civilized nations is cora^qsed of women, and if it is 
admitted that women labor as long and as severely as men 
it follows that a f ourt h of the labor^of_inen and women com- 
bined is destined for the household and not for the market. 
Bat this is only a part of the annual income of the country 
of which no account is taken in ordinary money-estimates 
of annual income. Three fouj'ths of the population of the 
Uni ted Stat es is ruralj and in the country a vast amount of 
material good things produced is destined for the household, 
and is rarely financially estimated. Vegetables, small fruits — 
cultivated and wild — butter, eggs, meat, fish caught in pub- 
lic waters, and game may be mentioned. Even wild nuts 
gathered are not altogether insignificant. Large as is this 
aggregate income neglected in estimates of annual produc- 
tion, it is by no means all. Property yields an income by 
use. My own house when occupied by me as truly produces 
a part of my income as when I rent it to some one else, for 
in either case I receive simplj'- a quantity of utility. Horses, 
carriages, wagons, furniture, books, works of art, and the 
like, all annually produce quantities of utility, and these 
often have a large market value when offered for sale. Yet 
these utilities, when produced by goods owned by those who 
enjoy them, largely escape valuation. All this will show 

* See l<]dwiii Caanan's Elementary Political Economy, Part ii, § 8, 
2 



24 AN INTRODUCTION' TO POLITICAL ECONOMY. 

how miserably inadequate and even absurd are current 
estimates of average per capita production of wealth, as 
that the average wealth daily produced in the United 
States is only forty cents, or fifty cents, per capita, as the 
case may be. ^ 

Misleading Comparisons between the Past and 
the Present. — Another important fact to be noticed in this 
connection is the misleading nature of ordinary comparisons 
between the wealth annually produced at the present time 
and the wealth annually pi'oduced at an early day, say fifty 
years ago. While household production is now large, it un- 
doubtedly lias relatively diminished in inip.ortaiic.e. Produc- 
tion of things which are bought and sold in the market-place, 
and are consequently readily estimated in money, is con- 
stantly gaijning in importance on household production of 
material good things. Hence annual production of raatei'ial 
good things, or, broadly speaking, of economic goods which 
we estimate in money, increases more rapidly than iieaLan- 
nual__pj'oduction ; and there is, consequently, a tendency 
always to.ejiaggerate progress, and, indeed, to _cou nt as prog- 
ress some things which are retrogression. Should boarding- 
house and hotel life totally displace private housekeeping it 
Avould increase the apparent annual production of Avealth. 

Economic Life Defined. — Summing up what has been 
said, we may define the(economic life of a people as its regu- 
lar systemjitic, activity f,or the acquisition and emjxlqynient 
of maJtei'Lal goods for the satisfaction of its Avants^ We may 
in a similar manner speak of the economic activity of any 
person — natural or artificial; as of a merchant, a farmer, a 
manufacturer, or a city, a township, a county, a State, a 
railway company, a bank, or a manufacturing corporation. 
We also use the word economy for economic life, as the 
econoiny of a family oi:_pf a jaation. 

The economic life of a people embraces the economic ac- 
tivities of all its individual members and of all its political 
units for the acquisition and employment of material goods, 
not merely for the satisfaction of individual wants, but for 



ISOLATED AND SOCIAL ECONOMIC LIFE. 25 

the satisfaction of wants of schools and clmrches and gov- 
ernments, local and general.* -^ 

The Economist not Confined to the Material Life. 
— But, again, it is necessary to remark that we are not con- 
cerned merely with the material life of men in its narrow 
sen<e, for there can scarcely be a phase of the life of society 
which does not come within the province of the economist. 
But other phases of social life than the material are consid- 
ered, rather indirectly than directly, as influencing the j^ro- 
duction of material goods or influenced thereby. The econ- 
omist and the physician, for example, both discuss the san- 
itary condition of cities, and both propose measures to lessen 
the awful mortality among the children of the urban poor, 
but they come to the consideration of this same topic by 
very different routes. The physician takes up directly the 
health of the people, while the economist proceeds from a 
consideration of labor as one of the factors of production, 
and from the welfare of the laboring population. The econ- 
omist finds one factor in production in an unsatisfactory or 
diseased condition, and searches for causes and proposes 
remedies. Likewise the educator and the economist both 
discuss industrial training, but each from his own peculiar 

stand-point. 

* Scbouberg is followed closelj' here. 



f 



CHAPTER III. 

CERTAIN SPECIAL AND ELEMENTARY CHARACTERISTICS OF 
THE ECONOMIC LIFE OP A PEOPLE. 

1. The Economic Life not for Self — It is characteris- 
tic of the economic life of the modern man that it is not for 
self but for others. As has already been shown, goods are 
produced not for use but for exchange. It follows as a direct 
consequence of this that the division of society into economic 
classes with the wide-extended division of labor is one of the 
fundamental facts of modern economic life. One class pro- 
duces one thing and another class a second thing, and so on 
indefinitely, and as the variety of commodities is great the 
number of economic or industrial classes must be large. 

2. Dependence of Man upon Man. — The dependence 
of man upon his fellows is another fundamental fact. We 
speak of the increase in the number and importance of com- 
mercial and industrial relations, and we simply give expres- 
sion to a movement which all can observe. But relationship 
in itself means dependence. There cannot be a relation of 
one ; it must be a connection between two or more. :^T/iis 
economic depe7ide)we of man upon inmi thus increases with 
the progress of industrial civilization^ and in this single 
i:)hrase lies locked up the ex plana tion of many of the com- 
plicated and distressing phenomena of our times. "In his 
economic position, in the manner and in the success of his 
economic activity, in all that pertains to his income and to 
his resources, the individual becomes dependent upon the 
economic activity and acts of others." * 

We may take as an example of this dependence of the 
modern man the manufactui-e of watches. If a man manu- 

* Sclionberg. 



THE ECONOMIC LIFE OF A PEOPLE. 27 

fa(!tures a whole watch he is dependent upon others. If tlie 
husbandman is shiftless or unskillful he will have no surplus 
grain to exchange for a watch. If the miner stop his work, 
the silver, gold, and other metals which enter into the watch 
will not be supplied. If the spinner and weaver cease their 
operations the watchmaker will sutter for clothing. If the 
shoemaker becomes indolent the watchmaker will be forced 
to go without covering for his feet, and so on indefinitely. 

Cjj^et us now take another step. Suppose a man manufactures, 
not a whole watch, as formerly, but only a small part of one, 
as at present — let us say the three hundi'edth part of a watch. 
How greatly is his dependence upon others increased ! He 
is now dependent upon hundreds of others engaged in the 
])roduction of watches, as well as upon other industrial 
classes. It is not improbable that he may be dependent 
upon a million others for the necessaries of life, so wonderful 
is the socio-economic organism in which and through which 
we live. Every day brings fresh illustrations of the growing 
economic dependence of man upon his fellows, showing that 
production is becoming more and more social in its nature, 
and less and less individual. (jRa ilway strikes offer a good 
illustration of the interdependence of man in industrial so- 
ciety. The entire economic life of the nation, and the life 
even of other nations, is affected by acts of a comparatively 
few. A recognition of this economic dependence of man 
upon man has even led to consequences in legislation and in 
judicial decisions, limiting the industrial liberty of those 
engaged in particularly important occupations. Some have 
gone so far as to wish to make it a criminal offense for those 
engaged in transportation to manage " their own affairs in 
their own way," as the saying is ; that is, freely to com- 
bine their forces and obtain for their labor the highest 
remuneration and most favorable conditions possible by 
peaceful means, including threats to quit work. It is replied 
that their occupation is not merely their own business but 
the business of the entire community, and that, therefore, 
they are under obligations to the general public. This is 



28 AN INTRODUCTION TO POLITICAL ECONOMY. 

true, but it should be remembered that obligation carries 
with it, as its correlative, duty. The general public can claim 
that employes of transportation companies are under obli- 
gations to it in case it recognizes that it owes a duty to these 
employes, and that duty must be to see that they are fairly 
paid for reasonable, not excessive, toil, and that the dangei's 
to which they are exposed are reduced to a minimum. It 
has been held by a distinguished judge of New York that 
transportation companies, having received something from 
the general public, namely, franchises, are bound to render 
service to the public, and must so treat their own emjjloyes 
as to render them willing to work. This is far more reason- 
able because duties are in this case imposed in consideration 
of valuable things received. 

The purpose of this illustration is to bring clearly to the 
mind of the reader some of the features of our industrial 
organism. It is plainly admitted that in special cases a 
man's work concerns not merely himself but the general pub- 
lic, and the difference between one soi-t of work and another 
is not so much of kind as of degree. AVhen the Reading 
Road coal miners in Pennsylvania struck in January, 1^88, 
it was* found to affect in many different ways millions of 
their fellow-beings. Coal became dearer, and this was felt 
by consumers of coal all over the eastern part of the United 
States at least. But this higher price affected not merely 
fuel consumed for heating and cooking purposes, but also 
that used in productive establishments, and thus caused a 
cessation of labor in some of them, and threatened to throw 
out of work a whole army of men when the strike stopped in 
February of the same year. The blizzard and snow-storm 
in the spring of 1888, which interrupted communication by 
rail and telegraph on the Atlantic seaboard of the United 
States, demonstrated clearly the interdependence of sections 
of our country. 

The old household economy was, relatively speaking, in- 
dependent. What the household produced it enjoyed, and 
it might live in the midst of plenty while its neighbors were 



THE ECONOMIC LIFE OF A PEOPLE. 29 

suffering from all kinds of economic calamities. There 
may have been, and was, some kind of mutual dependence 
in an immediate neighborhood, but this rapidly grew less 
with increase of distance, and often almost disappeared at a 
distance of a hundred miles. Charles Egbert Craddock's 
book. The Prophet of the Great Smoky Mountains, describes 
well a rude kind of isolated economic independence. The 
people of this region, exchanging goods for goods and using 
no money, were troubled by no questions of the currency. 
Speaking of the settlement in the Big Smoky, Craddock 
says: " It was hard to say what might be bought at the 
store except powder and coffee, and sugar perhaps, if ' long- 
sweetenin" might not suffice; for each of the half-dozen 
small farms was a type of the region, producing within its 
own confines all its necessities. Iland-looms cmild be 
glimpsed through open doors, and as yet the dry goods 
trade is unknown to the horacspun-clad denixens of the set- 
tlement. Beeswax, feathers, honey, dried fruit, are bartered 
here, and a night's rest has never been lost for the perplexi- 
ties of the currency question on the Big Smoky Mountains." 
Silver legislation and -greenback decisions were alike indif- 
ferent to them. Yet how wretched this indejiendence ! how- 
illusory! For the chief and most trying de[)endence of man 
is brought about by physical laws, and associated effort to 
rule nature may and does increase the real freedom of men, 
while it renders man more dependent than formerly upon 
his fellows. At the same time law and custom attempt to 
regulate and control this dependence of man upon man so 
as to mitigate its severities. When the dependence of one 
person upon another takes the form of mutual obligation be- 
tween equals in strength, it is often not felt as a hardship at 
all. It was evidently meant by the Governor of the uni- 
verse that man should seek union with his fellows. This is 
his salvation. 
< 3. Political Independence the Basis of a National 

Economy. — A nation whose economic activity and institu- 
tions we designate by the term economic Ufa or national 



30 AN INTRODUCTION TO POLITICAL ECONOMY. 

economy must always be a politically independent people, a 
number of men wlio are organically joined together in an in- 
dependent political nnity and who form in this unity an 
independent State.* This pi'esupposes a common possession 
of a territory, independence of other peoples, and the exist- 
ence of a highest State power which declares law and right, 
which prescribes the necessary legal rules for the execution 
of the desires of its individuals, including economic actions, 
and enforces obedience. This is substantially a definition 
of a State, but it may perhaps be better formulated in these 
words: The State is the union of a stationary people, occu- 
pying a defined territory, under a supreme power and a 
definite constitution. It is a continuous conscious organism 
and a moral personality which has its foundations laid in 
the nature of man, and its purpose is the welfare of the 
people, f 

* The American Union constitutes the real American State. Our com- 
monvvealtiis have only a Hmited sovereignty, and are imperfect States in tlie 
real sense of the word State; they are only parts of a jjreat State. 

f Tills definition is chiefly taken from Mulford's work, The Nation. 



r?-- 



CHAPTER IV. 



j- THE TWO GREAT FACTORS IN A NATIONAL ECONOMY. 

The ec onomi c life of a nation is the product of two great 
factors ; the firsTof these to he considered is the terjcitaiy, 
or portion of the earth occupied. 

1. Territory. — When we examine the influence of terri- 
y tory on economic life we must direct our attention, first, to 
the character of the surface. It will make a vast difference 
in the features of the economy of a nation whether the sur- 
face of the country is level or hilly or mountainous. 

Soil. — We should in the second place take note of the 
soil itself, and of what is below the surface of the earth. 
The importance of these considerations becomes manifest 
when we reflect on the character of the national economies of 
various countries, as, for example, of the United States, Ger- 
many, and Switzerland. American prairies are at least a par- 
tial explanation of the invention of the steam-plow; the treas- 
ures below the earth's surface, of the peculiar economic life 
of eastern and indeed western Pennsylvania; while sunny hill- 
sides in Germany account for the vineyards along the Rhine, 
and the mountains of Switzerland give a clue to common 
property in pastures, to fine cheeses, and to numerous small 
industries, as well as to the sturdy independence and demo- 
cratic institutions of the Swiss people. 

The Water Privileges and their special character must in 
] the third place claim our attention, for they are of peculiar 
importance in shaping the economy of a nation. A fine 
coast on an ocean favors international commerce, and great 
inland streams like the Mississippi and Missouri, and mag- 
nificent lakes like Michigan, Superior, Erie, and Ontario, en- 
courasce the crrowth of domestic trade. Fine falls of water 



S2 AN- INTRODUCTION- TO POLITICAL ECONOMY. 

promote manufactures, as we may see in the valley of the 
Connecticut, and in Augusta, Georgia, favorably situated on 
the Savannah. The scarcity of water in the " far West," and 
the wrong policy which has allowed private individuals to gain 
control over such streams as exist, go far to show how land- 
monopoly in certain regions of our country was established 
and is still supported. 

The Atmosphere is the fifth feature of the physical 
attributes which go to make up territory. Differences in 
atmosphere explain peculiarities of economic life. The favor- 
able climate on the shores of Lake Erie is an indispensable 
condition of the fine fruit grown in the western part of 
New York State. ^ 

' Size must next be mentioned. The great size of a coun- 
try like the United States, admitting of a rare degree of 
national economic independence and of most diversified pur- 
suits, is an immense advantage to the American people. 

Neighboring Nations.— Finally, the position of a coun- 
try with respect to neighbors must affect materially its en- 
tire life. Germany, situated in a great plain on the continent 
of Europe, surrounded by hostile nations, is an illustration. 
The bare statement of the facts relating to the situation of 
Germany shows that the Germans must, as things are, be a 
warlike nation. 

2. Man. — The second great factor of the two which pro- 
duce a national economy is the human factor, man; and we 
must treat this also under various sub-heads : 

a.) Economic Activity of Individuals. — The economic 
activity of the individuals in the country will first receive 
our attention. The nntional economy is not a mere addition 
of all private economies in the nation, nor of all private 
economies plus all public and quasi-public economies. The 
economic life of a nation may perhaps be better compared 
to a chemical compound which is something different fi'om 
the elements composing it, and is yet determined in its 
character by these elements. Water is not merely oxygen 
plus hydrogen. It is a new thing. We must, then, pass on 



Thucydides says that the explanation of all historical occur 
rences is that A causes Ji and J3 causes A. Action is accom 



TUB TWO ORE A T FA CTORS 7.V A NA TIONAL ECONOMY. 33 

from a consideration of the physical situation and environ- 
ment to the economic traits of the human beings who make 
up the nation. Their actiyity, their perseverance, their in- 
tegrily, their skill, 'I'll must be examined if we would under- 
stand the national economy. 

b.) Legislation and Administration. — The second 
sub-head comprises legislation and administration, and, like 
the first, is one form of the human factor. It is difficult to 
say whether this should precede or follow the first sub-head, 
in a perfectly logical arrangement. Individual economic 
activities largely shape legislation and administration, but 
these in turn profoundly affect individual economic activities. 

-f 

panied by reaction. Tiiis is also the case with respect to ' 
men and laws. Men make laws, and these in turn in their 
reaction make men what they arej 

The industrial importance of legislation and administra- 
tion is generally underestimated. Even where goveinment 
is reduced to its lowest terms it must do much to make pos- 
sible the existence of an orderly, peaceable society. What 
would be the condition of property and inheritance without 
laws? Property could not exist at all, in our present sense 
of that word, without government — for we are now consider- 
inor the rig-ht and not the thins^s over which that riojht is ex- 
ercised. Laws regulating the inheritance of property existi 
every-where, and profoundly affect the character of the na-l 
tional economy, making one country radically unlike another.' 
Laws governing the relations of man to wife are found in 
every civilized nation, and these have to do with economiq 
relations as well as other relations. Laws of contract, laws! 
establishing patent-rights, laws designed to protect children; 
and other helpless classes, maj'' also be mentioned as illustra-| 
tions. 

A comparison of France and England reveals mrst marked 
differences in their economic life. The English farmer, 
renting a farm of a great landlord, and the agricullural la- 



34 AN INTRODUCTION TO POLITICAL ECONOMY. 

borer are prominent features of rural life in England, wliile 
small peasant proprietors, farmers tilling felieir own little es- 
tates, attract the attention of the traveler in France. What 
is the cause of this difference ? Certainly the law has much 
to do with this; for in_En gland prim ogenitu re and, entail ob- 
tain, while inJFi:g,nce a father is co mpel led by Jaw to^divide 
the bulk of his pi-operty equally among his children. 

Factor one becomes relatively less important and factor 
two becomes relatively more important as civilization ad- 
vances. Man gains increasing power over nature and makes 
the wilderness blossom like the rose. The country about 
Halle on the Saale, where the writer once studied, was, it is 
said, naturally barren, but now it is like a garden. Man's 
skill has produced the change. Man has subjugated nature. 
Once a city could exist only on a great body of water, but 
the highways of modern times enable cities to spring up a 
hundred miles from any important navigable stream. 



CHAPTER V. 

^ THE ECONOMY OF A NATION AN HISTORICAL PRODUCT. 

The Law of Change. — The next main jDoint to engage 
our attention in our examination of the characteristics of a 
national economy is the fact of successive changes in its his- 
torical formation. All know how the uneducated talk. 
Suppose changes in laws or institutions are suggested. Peo- 
ple frequently smile in a superior kind of way and say, "It 
does very well for the theorist to talk about such things, but 
it is only theory." Conditions of property, labor, and capital 
cannot, in their opinion, be changed, and they assume that 
such as they are now they will continue to be, " No," say 
they, " things will go on in pretty much the same good old 
way." Now, if there is any such thing as a good old way in 
nature or in society, the man has never yet appeared who 
discovered it. There is none. The assumption that there is 
such a thing is a mere fiction. Take the one economic factor 
of labor. It is found in a condition of slavery, in a condition 
of serfdom, and in a condition of free contract. But these are 
only names for the three general conditions in which labor has 
been found, and within each one of these conditions there 
has been a multitude of changes. ^Slavery has assumed a vast 
variety of forms, some extremely harsh and some extremely 
mild, with almost infinite gradations between the two ex- 
tremes,'^Serfdom at times appears as harsh as.slavery, and it is 
also found in forms which differ little from f ree<lom, and which 
are doubtless in some respects superior to the condition of 
the ordinary laborer who is free to make his own bargains, 
or who, as we say, lives under the regime of free contract. 
■^Free^eontract in its turn means many different things: some- 
times, indeed, the oppression by the employe of the one 



38 AX INTRODUCTION TO POLITICAL ECONOMY. 

who employs labor, but oftener the practical dependence of 
the laborer on accoiint of the pressure of economic necessity; 
at times, indeed, a dependence which virtually amounts to 
slavery, as has been seen in the case of tailors in London 
employed by so-called " sweaters," or small contractors, who 
have reduced their workmen to such a condition that perhaps 
a dozen have only one coat among them, and they are kept 
jjrisoners in the dens where they work. (Combinations of la- 
borers are now introducing changes mtho. regime of free con- 
tract, for organizations make contracts for a multitude of 
individuals.) Laws undergo change, and institutions, which 
are the outgrowth of laws and custom, are gradually but per- 
petually undergoing modification. Property is in a contin- 
ual flux. A large part of landed property was once common 
property; that is to say, owned by a body of persons, town, 
state, or city, in their organic capacity. Village communi- 
ties once owned land whirh was parceled out among the 
citizens or used in common. The greater part of land in 
civilized nations has become the property of individuals, 
but we now observe a reverse process of some significance. 
Forests are becoming in modern countries public property 
once more, and the process has begun even in the United 
States. It is bound to continue. We see cities also purchas- 
ing — in some cases repurchasing — land for public purposes, 
especially for pleasure grounds. (t)ne great species of prop- 
erty, railways, has in Prussia mostly passed out of private 
hands into the property of the State, and charter conditions 
of railways are likely to bring this about in Austria, France, 
and elsewhere in a comparatively near future. The tenure 
of private property, or the conditions under which it is held, 
also change from time to time, now in one direction, now in 
another, y 

The Evolution of Law. — A distinguished student of 
early law, Sir Henry Sumner Maine, has clearly shown the 
perpetual changes which all law undergoes. " We are in 
danger," says this jurist, "of overestimating the stability 
of legal conceptions. Legal conceptions are indeed ex- 



THE ECONOM Y OF A NA TION AN IIISTORIGAL PR 01) UCT. 37 

treinely stable; many of them have their roots in the most 
solid portions of our nature. . . . This great stability is apt 
to suggest that they are absolutely permanent and inde- 
structible. , . . What I liave stated as to the effects upon 
law of a mere mechanical improvement in land registration 
is a very impressive warning that this position is certainly 
doubtful, and i)ossibly not true. The legal notions which I 
have described as decaying and dwindling have always been 
regarded as belonging to what may be called the osseous 
structure of jurisprudence; the fact that tliey are neverthe- 
less perishable suggests very forcibly that even jurisprudence 
itself cannot escape from the great law of evolution." * The 
evolution of property, especially of property in land, has 
been described in great detail by a learned Belgian, Pro- 
fessor dc Laveleye, in a work which bears the title Primitive 
Property. 

The Necessity of Historical Study. — We find marked 
economic differences between various pei'iods in the life of 
one nation, and almost equally marked differences between 
the economic institutions of contemporaneous nations. All 
this shows first the necessity of a careful historical and sta- 
tistical study of economic activities and institutions in the 
past and in the present. It reveals to us, in the second place, 
the folly of those who would prescribe the same laws for all 
people and for all times, or who would pass judgment on the 
institutions of Prussia under Frederick the Great as if these 
same institutions existed to-day in America or in England. 

Peculiar Position of Political Economy. — The 
changes which continually take place in our economic life 
are in great part the product of human will, for this will of 
ours is a chief economic factor. Political economy is a pe- 
culiar science, occupying a position midway between natural 
sciences and mental and moral sciences. It deals with rela- 
tions between mind and matter, or, more broadly speaking, 
man and the external physical universe. Our economic life 
is in part governed by laws over which we have little con- 
* Mninc's Early Law and Custom, chap. x. 



88 AN INTR OD UGTIO N TO POLITIC A L ECONOMY. 

trol, and to a still greater extent by physical laws wbicli Ave 
cannot alter in the least, but which we can only use; but our 
power is nevertlieless very great, and it is daily becoming 
greater as we learn better how to use natural laws, and thus 
to subjugate nature. Within certain limits we can have just 
such a kind of economic life as we wish, and herein lies our 
responsibility, as a people, for the character of our national 
economy. It is at our peril that we try to evade or shift this 
responsibility. We must continually progress, and " Prog- 
ress in economic life consists in this: that our economic activ- 
ities and institutions realize in a higher degree than hereto- 
fore the demands of humanity and justice, and become the 
basis of a higher civilization of individuals and nations."* 



Read Ward's Dynamic Sociology, introduction to vol. i, 
and M. de Laveleye's Primitive Property, author's preface to 
original edition, and chap. i. 

* Schonberg, /. c. 



CHAPTER VI. 

THE STAGES m THE ECONOMIC DEVELOPMENT OF CIVILIZA- 
TION. 

Change in Economic Life. — While the evolution of our 
economic life proceeds without interruption, in taking a sur- 
vey over human history we discover such marked differences 
gradually appearing at long intervals that we divide this 
evolution into parts which we may designate as stages. We 
mean, then, by stages in economic development changes and 
advances in the methods of procuring economic goods, in 
their character, variety, and number, in the distribution of 
goods, in the manner in which material and immaterial wants 
are satisfied; in short, in all that is included in the designa- 
tion economic life. 

Prehistoric Economy. — There seems to be evidence of 
the existence of a prehistoric man who obtained material 
goods like beasts, by simply taking possession of natural 
products, exercising little or no control over nature, and 
protecting liimself from the elements only by caves or the 
simplest contrivances. The construction and use of his 
rude buildings appear to have been learned from the lower 
animals. Man was in such a condition a slave of nature. 
Human law did not restrain him. There was no law, as 
tliere is no law to-day in the "heart of Africa." Never- 
theless, the modern man, whose daily life in a thousand 
ways is guided, directed, ami controlled by the statutes 
framed by himself and others, is a thousand times freer, 
and wise laws even increase freedom. Economic freedom 
is a far more important thing than political freedom, but 
the two are quite different. What advantage is it to me to 
have the legal right to take a trip around the world if I 



40 AN' INTROD UCTION TO POLITIC A L ECONOMY. 

never have the economic means to enable me to do so? 
What advantage is it to be able to seek another employer, 
provided there is no other who cares for my services, and my 
present employer alone stands between me and death by 
starvation ? So the savage is free to come or to go, to woi"k 
or to play, so far as laws of man are concerned, but nature 
enslaves him more pitilessly than Draconian laws. " The 
true savage," says Sir John Lubbock, " is neither free nor 
noble ; he is a slave to his own wants, his own passions ; 
imperfectly protected from the weather, he suffers from the 
cold by night and the heat of the sun by day ; ignorant of 
agriculture, living by the chase, and im])rovident in success, 
hunger often stares him in the face, and often drives him to 
the dreadful alternative of cannibalism or death." * 

Modern Man. — With the foregoing passage should be 
compared the following sentence from Sir Henry Maine : 
" With us, I need scarcely say, there is little conscious ob- 
servance of legal rules. The law has so formed our habits 
and ideas that courts of justice are rarely needed to compel 
obedience to it, and thus they have apparently fallen into 
the background," f 

The Economic Stages. — This earliest existence of the 
human species — earliest at any rate from the stand-point of 
evolution — is something so remote, and sometliing about 
which our knowledge is so fragmentary and uncertain, that 
we are scarcely able to treat it as a separate stage in economic 
evolution. We begin in our description of economic stages 
with the time when men had learned to kindle fires, to eat 
meat, and to live in some kind of political communities, how- 
ever imperfect. We then divide economic development from 
this time up to the present into five stages when viewed 
from the stand-point of the i)roduction of niaterial goods, 
and into three stages when viewed from tlie stand-point of 
the transfers of these goods. This second classification of 
stages must be regarded as subordinate to the first. The 

* Prehistoric Times, cliap. xvi. 

f Earhj Law and Custom, cliap. xi. 



STA GES ly ECONOMIC BE VEL OPMENT OF CIV/LIZA TIOX. 4 1 

following are the stages into which we may roughly divide 
economio progress when it is viewed from the stand-point of 
him who inquires how goods are produced : 

1. ITie hunting and fishing stage. 

2. The pastoral stage. 

3. The agricultural stage. 

4. The trades and commerce stage. 

5. The industrial stage. 

We may ask the question, How are goods transferred from 
person to person? When we examine the methods of trans- 
fers of goods with which we are acquainted we find that we 
may divide economic progress from the feeble beginnings of 
civilization to our own day into three stages with respect to 
these transfers, and these three stages are the following: 

1. The period of truck economy. 

2. The period of money economy. 

3. The period of credit economy. 

These stages will be briefly described in the following 
chapter. 

Sir John Lubbock treats of savage man and his evolution 
in a most interesting manner in the last chapter of his Pre- 
historic Times. It is chapter xvi, and entitled, " Concluding 
Remarks." The student would do well to read also chap- 
ter iii of Drummond's Tropical Africa^ on " The Aspect of 
the Heart of Africa : The Country and People." 



CHAPTER VII. 

ECONOMIC STAGES YIEWKD FROM THE STAND-POINT OF PRO- 
DUCTION AND FROM THE STAND-POINT OF TRANSFERS OF 
GOODS. 

. I. Economic Stages Viewed from the Stand-point of Puoduction. 

1. The Hunting and Fishing Stage.— Nature is tlie 
principal factor in production in this stage. Labor, and more 
especially capital, play very subordinate roles. Man still con- 
tents himself with what nature gives. Labor is expended 
chiefly in procuring her bounties. Animals are not tamed 
and rendered subject to man ; still less can any traces be 
found of attempts to improve useful animals by breeding, or, 
to use Mr. Alfred Russel Wallace's happy phrase, by the 
substitution of man's selection for natural selection. Prod- 
ucts are not transformed by manufacturing processes ; 
goods are not even stored up in time of abundance to make 
provision for a future time of dearth. The American wild 
Lidian, a type of this stage of evolution, lives in a condition 
of gluttony when the hunt is successful, wasting good food 
with unconcern, and suffers the following week when good 
fortune no longer waits on his bow and arrow. In this re- 
spect as in others he exhibits the traits of a child among 
civilized men. 

Economic action is relatively isolated. It is confined 
mainly to the family, within which there is a rudimentary 
division of labor ; but there is no common organic activity. 
It is, for the most part, each man for himself. Goods are ac- 
quii-ed not for exchange but for immediate use, although 
there seems to be no unwillingness to make exchanges when 
opportunity offers to get something new and attractive, if 



E C OyOMIC STA GES. 4 3 

AVG may judge from the traits of American Indians and the 
negroes of Africa. 

As there is no real division of labor, but all perform the 
same tiling, there are no economic classes; no employers and no 
employes and no industrial conflicts. The very vocabulary 
of modern political economy, like Avages, capital, strikes, 
lockouts, taxation, arbitration and conciliation, customs 
duties, must be wanting. The phenomena of so called over- 
production or under-consumption and crises are as unknown 
to people living in this stage as the economy of the possible 
inhabitants of Jupiter to us. The greater part of property is 
common, as is all land. Private property is confined to one's 
arms, one's household goods, and the immediate rewards of 
one's labor. 

Hunting Tribes. — There is some difference between 
those living primarily on the products of the chase and only 
secondarily on fish, and those who reverse the process. The 
environment of each class modifies essentially its character- 
istics. Confining ourselves for the moment to those living 
in the hunting stage, Ave find a high development of such 
qualities as cunning, endurance, skill, bodily stiength, but 
the mode of life does not lead to the development of tech- 
nical skill nor to a reflection upon the processes of nature. 
This condition of life presupposes large territories and a 
sparse population. It has been estimated that in a popula- 
tion like this, living purely on the products of the chase, 
each hunter requires fifty thousand acres, or seventy-eight 
square miles, for his support, an area which in Belgium would 
support twenty-five thousand people. There seems to be 
reason to suppose, however, that this is an under-estimate 
of the population which can be supported by the chase; cer- 
tainly so if any subordinate means of support exist, like 
fishing. Berries have almost always been a partial means of 
support, as has other wild fruit. Certainly, however, the 
population must be thin, and wars may be regarded as an 
economic necessity for the barbarians living in this stage 
whenever there is not an abundance of unoccupied land, 



44 AN INTROD UGTION TO POLITICAL ECONOMY. 

just as cannibalism has been described as an economic ne- 
cessity for human beings of the most degraded sorts; human 
beings to whom Sir John Lubbocl?: is scarcely willing to 
attribute responsibility. The perpetual warfare with man 
and beast which is a condition of existence develops the 
bravery which has been so much admired in the American 
Indian. 

Fishing Tribes.— Those living primarily and chiefly 
from the products of lishing are different. As might be 
expected, they are more peaceable and population is denser, 
as so large a territory is not required for the support 
of a given number of people. A larger accumulation of 
the products of past labor, or capital, is found among fisher- 
tribes, as there is less need of migrations. Dwellings are 
of a more permanent character, and boats and fisliing imple- 
ments are constructed. Labor is a more important factor, 
and on the whole the power of man over nature is greater 
than among hunting tribes. People living in the fishing 
stage can now be found only in the frigid zone. Tribes liv- 
ing on the pi'oduce of fishing have seldom become nomads, 
but generally agricultural, and often they have taken early 
to commerce and navigation. 

2. The Pastoral Stage. — When hunting tribes begin 
to domesticate animals they enter usually upon the pas- 
toral stage. The earliest chapters of the Bible give us 
vivid pictures of peoples living in the pastoral stage. Man 
does not live merely by taking what nature offers, but he 
acts upon nature. He gains a partial control over nature. 
The element of labor comes forward more prominently. 
Labor is required to seek out ^Dastures and to protect ani- 
mals. Families, clans, and tribes living in this stage have 
no settled abiding place, but they wander to and fro on the 
face of the earth to find food for their flocks. As land is 
not cultivated it requires a large area to support a single 
family, and over-population is a frequently recurring phe- 
nomenon. Tribes separate, part going one way and part 
another, or they attempt to get more land by conquest of 



ECOKOMIC STAGES. 45 

Others. Such a separation is described in the Bible in the 
thirteenth cliapter of Genesis, where it is said that " Abram 
was very rich in cattle, in silver, and in gold. . . . And Lot also, 
which went with Abrani, had flocks, and herds, and tents. And 
the land wa3 not able to bear them, that they might dwell 
together: for their substance was great, so thattliey could not 
dwell together. And tliere was a strife between the herd- 
men of Abram's cattle and the herd men of Lot's cattle. . . . 
And Abram said unto Lot, Let there be no strife,! pray thee, 
between me and thee, and between my herdmen and thy herd- 
men. ... Is not the whole land before thee? Separate thy- 
self, I pray thee, from me: if thou wilt take the left hand, 
then I will go to the right; or if thou depart to the right hand, 
then I will go to the left." Thus they separated, and is it 
not a perfect picture, setting before us the economic condi- 
tions of the time and place ? 

But attempted conquests frequently take the place of 
peaceful separations, and tribes of brethren which are too 
large for the territory already occupied seek to gain more by 
displacing other tribes. This over-population explains the 
warlike incursions of barbarian hosts into Europe from the 
heart of Asi.i, and the wanderings of the nations in the early 
centuries of the Christian ei-a. This part of history, like 
others, cannot be understood without a knowledge of political 
economy. 

Land was for the most part common property; common, 
that is, to members of the tribes, for rights of other tribes 
to property or even to life were not recognized. Within the 
tribe or nation — if we may properly use the latter expres- 
sion — there was a very real brotherhood, but ethical ties did 
not pass beyond tribal bounds. Stranger and enemy are 
often expressed by the same word. But even the tribal 
claims to land can scarcely be designated by the modern 
word property. The only right in the land Avas one of 
possession; the right of use as distinguished from the right 
of property. This must not be understood to mean that in 
any historical time there was no such thing as a right of 



46 AN INTRODUCTION TO POLITICAL ECONOMY. 

private property in land, and that land was never bought 
and sold. Stationary peoples existed contemporaneously with 
wandering tribes, and, while the greater part of land was 
held in common, pieces of land may have been private prop- 
erty. Abraham, it will be remembered, bought of Ephron, 
the son of Zohar, a field for a burial-place for Sarah his 
wife, and paid four hundred shekels of silver for it. Yet 
the ceremonies connected with it indicate, as has been well 
shown by Sir Henry Maine in similar cases, that the land, 
liad belonged to the tribe, and that at the time it was a mat- 
ter in which the tribe felt themselves concerned, and not 
merely a private transaction between Abraham and Ephron 
the son of Zohar. 

The pastoral stage, nevertheless, allowed large accumula- 
tions of property in the form of cattle and of precious 
stones, precious metals, and finely woven fabrics, or, in gen- 
eral, of capital. 

Extremes of Wealth.~We also find in this stage enor- 
mous differences between the possessions of various members 
of the clan and the tribe. The poor, the well-to^do, and 
the rich already exist. Abraham, for example, was "a 
mighty prince." Among the sons of Heth men are divided 
into employers and employed — the latter generally slaves — 
and economic classes are formed. Slavery was not a possi- 
bility in the first economic stage, for maintenance with 
weapons was impossible, and masters could not arm their 
slaves. The conquered were slaughtered in the earlier 
stages, but in the pastoral stage their lives were frequently 
spared and they were reduced to slavery. A milder form 
of warfare was thus introduced. Women and children were 
evidently spared earlier than conquered males, who were fre- 
quently massacred after the beginning of the pastoral stage,/- 
and also even after the later stages began to exist, 

A more regular economic life and a higher degree of 
l^robability of permanent sufficiency of food succeeded the 
former irregularity of superfluity and direst want. 

Exchanges in the pastoral stage are still the exception. 



ECONOMIC STAGES. 47 

The economy of each family or household is for the most 
part surtieient unto itself. 

The leisurely and often quiet mode of life, the nature of 
the work — watching the Hocks in the open fields— leads to an 
ohservalioa of natural phenomena, especially those of the 
heavens, and astronomical knowledge exists in a rudimentary 
form. Religion and poetry were the outcome of a contem- 
plative and reflective life, and in the language of shepherds 
highly figurative speech is common. 

We find among nomads a high appreciation of personal 
freedom, warlike customs, but no feeling for home. Patri- 
otism, as we understand it, was of a later growth. All the 
civilized nations of Europe once led the nomadic pastoral 
life on the highlands of middle Asia. 

3. The Stationary Agricnltural Stage. — Agriculture 
is in the third stage added to the keeping of flocks, to the 
chase, and to fishing. A greater vai'iety of food is offered 
to man, wlio now ceases his wandering life. A denser popu- 
lation becomes possible, and the union of different settle- 
ments into a larger political Avhole gradually forms the mod- 
ern nation. Dwellings now become finer and more substan- 
tial, and there is an increase in the course of time in the 
number of objects included in private property, and the 
interests on the side of quiet and orderly progress become 
stronger. It is not, however, clear that the transition from 
the pastoral and the nomadic stage is always at once or even 
for some time accompanied by an increased number of ob- 
jects included in private property. There would, on the 
contrary, from the researches of Sir Henry Maine, appear to 
be evidences of an opposite movement. Village communities 
were probably the earliest form of settled agricultural life 
among the Aryans, and these continue in East India, in Rus- 
sia, and elsewhere, even to the present day. Land belonged 
to the village, and the arable portion of the common terri- 
tory was allotted from year to year or for longer periods to the 
members of the community, while pasture-land and forest- 
land were used in common. This is generally recognized, 



48 AN INTROD UCTIOK TO POLITICAL ECONOMY, 

but it appears that frequently movables wei*e common prop- 
erty, and even to-day in Montenegro there are village com- 
munities in which the earnings of a member who has left the 
commimity and gone out into the world are still claimed by 
the community. Sir Henry Maine tells us also of a Russian 
villasre whose chief income is derived from a boardinff-scliool 
kept by ladies who are members of the community. Where, 
however, the village community does not exist at all, or has 
ceased to exist, rights of private property appear gradually 
and steadily to expand, and to cover an increasing number 
of things. The general rule in this stage is communal prop- 
erty in land with personal rights of usufruct. Each one has 
certain rights according to his needs and situation, possibly 
according to rank, in the common pastures and common 
lands. Love of home and country now arise. Production is 
still largely carried on in comparative isolation. Things 
produced are consumed chiefly in the household, and few 
exchanges take place. Such commerce as exists ministers 
chiefly to luxury, and this long continued to be the case, 
which partially, at least, explains the hostility of ancient 
philosophers and of the fathers of the Church to commerce. 

This stage endured for centuries among many peoples 
until the Stddtebildung — the building of the cities — in the 
tenth and eleventh centuries. It was not Avholly displaced, 
but only modified, unceasingly modified, with the progress of 
time, by subsequent stages of economic life. To-day the 
marks of this stage of life are clearly discernible in our in- 
dustrial life even in America. The word " common " is an 
instructive survival. The Boston " Common " and " com- 
mons" of other New England towns, pieces of land still left 
in common ownership, are parts of larger tracts once held in 
common, and on which all citizens had rights of pasturage 
and other rights of usufruct. 

4. Trades and Commerce Stage. — Hand -labor, so- 
called, becomes an important factor in this stage. Raw 
materials are transformed by the skill of man, and his power 
over nature becomes more marked. Commerce does not 



ECOyOMIC STA GE3. 49 

Spring np, for this has already exiated, but it begins to play 
a far more important part in indnstrial life, and the liner 
products of one region or country are exchanged for those of 
another. Even bulky products not quickly perishable are 
transported long distances when this can be done by water. 
Important cities on the sea-coast and on great rivers arise, 
and these become centers of culture and refinement. Mines 
are worked, the use of money becomes more general, and a 
radical change in the entire economic life of the nation is 
observed. This life becomes a real organism, and the people 
who live it have entered upon the era of modern civilization. 

Economic Classes and the Rise of Cities. — The divis- 
ion of labor, beginning on estates of powerful temporal and 
spiritual lords and in convents, gradually extends, and popu- 
lation is divided according to occupation into a large num- 
ber of economic classes. Cities, the most active centers of 
the new life, become objects of hostility to old magnates, 
and frequently unite with distant and more powerful 
princes against feudal lords for protection, and at the same 
time strengthen central powers. Dependents of feudal lords 
are encouraged to iiy to the cities, and the legal maxim is 
established, " City air makes free." Residence in a city 
makes a former serf a free man. Guilds of free men are 
gradually developed, and these foster the growth of trades 
and commerce, using their power for good at first, but later, 
in a period of decay, for evil, in the establishment of exclu- 
sive privileges and onerous monopolies. Changes in eco- 
nomic legislation and administration take place. Non-material 
products are bought and sold. Writers, teachers, and art- 
ists are found as classes in the economic organism. In an- 
tiquity the Egyptians, Indians, Phenicians, Assyrians, Medes, 
the Persians, the Greeks, and Romans occupied this position. 
The civilized nations of the present day lived in this stage 
until the nineteenth century, and in our South until the Civil 
War. 

5. The Industrial Stage. — The industrial stage is the 
period in which the great civilized nations of the earth are now 



50 AN mm OD UCTION TO P OLITICA L ECONOMY. 

living, and to a description of which the rest of this book will 
be chiefly devoted. We observe in tliis stage far-reaching 
changes in the economic organism of society, due largely to 
a marvelous extension of the principle of division and com- 
bination of labor. This was made possible, was indeed ne- 
cessitated, by the application of steam to industry and the 
improvement in the means of communication and transjjort. 
The political freedom and nominal legal equality of all men 
— formerly regarded as a mere Utopia — are now realized. 
Sciences and arts have advanced with giant strides. 

As we call this stage the industrial, we may speak of the 
industrial national life as well as economic national life. The 
two expressions are often used interchangeably. We can 
speak of industrial society as well as economic society. The 
difference to be observed between the two words is that 
economic is more general in its use, and that industrial is fre- 
quently confined to this last stage of development. Econ- 
omy has also a wider range of use than industry. We thus 
speak of a national economy, but not in the same sense of a 
national industry, for the latter expression would be generally 
understood to mean one pursuit or occupation in the national 
economy. 

Before we pass on to a description of some of the general 
characteristics of modei'n economic life it is necessaiy to 
speak briefly of the three stages into which economic prog- 
ress may be divided with respect to transfers of goods. 

II. Ecoxoiiic Stages Viewed from the Stand-point of Transfers, op 

Goods. 

1. Tnick-Economy. — Truck-economy is the term used 
to denote the period which precedes the use of money. 
Barter is often used, but it is too narrow. Barter implies 
mutual or two-sided transfers, whereas the element of re- 
ciprocity is often absent in transfers of goods. There are 
one-sided transfers as well as two-sided transfers. Taxes, 
presents, inheritances, are examples of one-sided transfers of 
goods. Barter is included as a sub-head under truck-ecou- 



ECOXOMIC STAGES. 51 

omy, but it includes, to be sure, the greater part of the trans- 
fers. We have, then, 

A. One-sided transfers of goods. 

B. Two-sided transfers of goods, or barter. 

Under B we have three sorts of barter: a, material gooils 
for material goods; ^, material goods for services; c, services 
for services. 

2. Money-Economy. — The use of money as a medium 
of exchange becomes common and displaces truck for the 
most part, though transfers without the intervention of 
money are frequent. 

3. Credit-Economy. — Credit is the instrument for the 
greater number of exchanges. Money is still used, but, in 
the latest development of credit-economy, only as "small 
change." Banks are the chief organs of society for credit- 
economy. We live now in the period of credit, and the 
volume of money is small when compared with the amount 
of annual transactions in what are called instruments of 
credit, by which we mean principally checks, drafts, and bills 
of exchange. The receipts of banks are calculated in terms 
of money, but an American bank in a great city will in a 
day's business frequently handle over forty dollars in instru- 
ments of credit for every dollar in actual money. Many 
modern phenomena are due to credit. Crises and so-called 
over-production are closely connected with credit-economy. 
3Iore will be said about the features of our present credit- 
economy in subsequent chapters. 

The Economic Stages not Exclusive. — The division 
of economic progress into three stages with reference to the 
manner in which goods are transferred has been criticised, 
and one criticism has been already mentioned. This second 
classification is subordinate to the first. The period of truck 
would, in a rough kind of way, be coincident with the hunt- 
ing and fishing and pastoral stages, and would continue on 
into the stationary agricultural stage until that began to pass 
over into the trades and commerce stage. A great deal of 
truck and barter still occurs in the trades and commerce 



52 AN INTRODUCTION TO POLITICAL ECONOMY. 

Stage, but money has become a general medium of exchange, 
and probably this stage could be called a period of money- 
economy. Credit-economy is really only a part of the indus- 
trial stage, and belongs to the nineteenth century. One fact 
alone is sufficient to show the change from the eighteenth 
century to the nineteenth. Banks existed before the pres- 
ent century, but were comparatively few in number, were 
chiefly confined to a few cities, and were not an essential 
part of the entire national economy. There were, for exam- 
ple, only three banks in the United States a hundred years 
ago, and now some three thousand national banks are doing 
business in our country in addition to banks organized under 
State laws. Banking means credit economy. 

It is also said that money does not exclude truck, and 
credit does not exclude money, but this can scarcely be 
urged as a valid ground against this division of economic 
progress into these three periods. Money is even found in 
the period which we ought to call truck-economy. These 
terms used simply signify the dominant characteristics of 
periods which gradually and perhaps almost imperceptibly 
pass into one another, just as the vegetable kingdom passes 
over into the animal kingdom. 

Prehistoric archseology has been divided into three pe- 
riods, namely, the stone age — sub-divided into two parts, the 
palaeolithic and the neolithic — the bronze age, and the iron 
age, but the later period does not exclude the earlier. Stone 
implements are used both in the bronze and iron ages. 



The literature in English touching this economic progress 
of man through stages is inadequate. Many valuable works 
exist on the origin and growth of civilization, but they do 
not deal with the subject from an economic stand-23oint, and 
it is necessary to place many incidental remarks together to 
obtain a picture — even so imperfect — of the economic life 
of the tribes and nations discussed. The following works 
will be helpful: 



ECOXOAfIC STAGES. 53 

Sir John Lubbock's Prehistoric Times, particularly the 
last chapter, and also his work, Oriffi/i of Civilization and 
Primitive Condition of 3lan. I)i\_l)aiiiel„Wilsoii'3 -Pre- 
histgrinJiliiu, dealing chiefly with natives of America. Re- 
ports of the Bureau of Ethnology connected with the 
Smithsonian Insiitution, Washington. Morgan's Ancient 
/Society. Tylor's Anthropoloiji/, particularly chapters ix to 
xi. Si.r Henry Maine's works are standard authority on vil- 
lage co mmunities, particulaily in India. The four works 
written by him of importance in connection with this chap- 
ter are Ancient Law, Village Communities in tite East and 
West, Early History of Institutions, and Early Law and 
Custom, especially chapter viii in the last named book, on 
east-European house communities. A popular account of 
Russian communities is given in the interesting work on 
Mussia by Mackenzie Wallace. A very clear picture of life 
in the Russian village community, the Mir, is given in the 
first chapter of Russia Under the Tsars, by Stepniak, pub- 
lished in cheap form in the Harper's Franklin Square 
Library. Aspects of English progress during the past six 
centuries are described in Work and Wages, by Thorold 
Rogers. I'oynbee's Lulustrial Revolution treats admirably 
of recent changes. Parts of economic treatises in English 
deal inadequately with the subject-matter of this chapter, 
as, for example, the Preliminary Remarks of John Stuart 
Mill's Political EcononiTj, and chapter vii of Book I of Mar- 
sHaU's Economics of Industry. German literature is richer 
in works dealing with the evolution of economic life, but 
perhaps no brief sketch is better than Schonberg's Volks- 
wirthschaft, which serves as the first monograph in the 
Handbuch der Politischen Oekonomie which he edited. The 
present author ha.s derived more from Schonbo-rg for Part I 
for this work than from any other source. Kni^ahas treated 
the subject admirably in his work, Politische Oekonomie 
vom geschichtlichen Standpunkte. These works have nnl 
fortunately never been translated. An important sketch of 
economic development has been given by the abla protoc- 



54 AN INTR OD UCTION TO POLITICAL ECONOMY. 

tionist, Frederick List, in his book Das Nationole System 
der Politischen Oekonomie. Two translations of this work 
exist: an early one by G. A. Matile, which appeared in the 
year 1856, and a later one by Sampson S. Lloyd, M. P., 
which appeared in the year 1885. M. de Laveleye's work 
on Primitive Property should be read by all who desire to 
familiarize themselves with the evolution of property, espe- 
cially in land. Valuable suggestions for young countries 
like the United States are offered. 



CHAPTER VIIT. 

A FEW MAIN CAUSES FOR THE EXISTENCE OF PRESENT 
ECONOMIC PROBLEMS. 

Economic Problems not Local. — We have reached 
the highest stage yet attained of economic life, and yet there 
were never so many economic questions pressing for solution 
as at present. The situation of no nation is peculiar in this 
respect, though narrow ignorance in each nation assumes 
that discontent in that particular land is without foundation. 
It is particularly noticeable that it is very general in mod- 
ern countries to ascribe discontent to the agitation of for- 
eigners. The truth is, however, that the general features of 
industrial society are very similar in all modern countries, 
and it is in the nature of industrial society itself that we 
must look for causes for the existence of pressing economic 
questions. What are these causes ? 

1. The Industrial Revolution. — We must first notice 
the fact that far-reaching changes in the socio-economic or- 
ganism have recently taken place and that these have suc- 
ceeded one another with surprising and unprecedented 
rajndity. These changes have been brought about by ad- 
vances in science and art, through discoveries and inventions. 
So rapid have been the changes of the i)ast century that it is 
customary to speak of them as the industrial revolution. 
Space is so limited in a work like this that it is impossible to 
dwell long on the remarkable features of this recent develop- 
ment. Let the reader, however, call to mind the many things in 
our economic life which the world ne\er saw before. lie will, 
of course, think at once of the railway and of steam navigatiim, 
and of other applications of steam to industry. But these have 
brou^lit about other important new phenomena. The con- 
'3* 



56 AF INTRODUCTION TO POLITICAL ECONOMY. 

centration of large masses of working-people in great facto- 
ries of which they own no part, and under a single employer* 
such as we see daily, is something new for skilled mechanics ' 
not that nothing of the kind ever existed before, but its ex- 
istence is so much more common and affects so many more 
people that in its social aspects it is new. In the last century, 
and in previous centuries of the Middle Ages, artisans owned 
the tools which they used, and after they had fully mastered 
their trades usually called no man master, but worked in their 
own little shops. Even within the memory of the author, 
still comparatively a young man, this condition of things has 
become less common. The smith under the spreading tree, 
of whom Longfellow sang, is disappearing. He has left the 
cross-roads in the little village and now Avorks in a machine- 
shop. His friends, the carpenter and the shoemaker, have ac- 
companied him. A few artisans may stay to do repniring and 
otlier small work, but the cheaper processes of vast establish- 
ments have rendered this migration inevitable for the many./ 
Only the few among artisans can live in the old style. This can ' 
be seen in the immediate neighborhood of the meeting place 
of the Chautauqua Assemblj^ in Chautauqua County, in New 
York State, as well as elsewhere. Looking across Chautau- 
qua Lake one sees Maysville; a few miles to the west is West- 
field; a ^ev!^ miles north-east of Westfield is Fredonia, and 
there are many other small places within a radius of fifteen 
or twenty miles of which very few have kept pace in their 
growth with the growth of population in the United States, 
Jamestown, at the foot of the lake, being a notable exception. 
Articles formerly made in these small villages are now manu- 
factured in Buffalo, Cleveland, and other great cities. Houses 
are constructed in Buffalo in large establishments, and they 
are sent to small places where it is only necessary to put 
them together. Merchants h.ive also been obliged to leave 
the villages where they were owners of independent estab- 
lishments to seek employment in immense city retail and 
wholesale shops, because the railroad has carried their cus- 
tomers away from them. The amount of production in- 



MA IX CAUSES OF PRKSKXT ECONOMIC PROBLEMS. 57 

creases routimially, but tlie number of sejtarate ostablish- 
iiieiits where production is earriecl on decreases uninterrupt- 
edly. Milling serves as a good illustration. " The completion 
of tlie great mills has caused the abandonment and decay of 
hundreds of the picturesque, old-fashioned neighborhood 
mills. In 1870, according to the census of that year, there 
were in the entire country 22,573 grist mills, 58,448 hands, 
representing $151,500,000 of capital, and making a product 
worth §444,900,000. In 1880 the number of establishments 
was 24,338, the number of hands 58,407, the c;i])ital invested 
$177,300,000, and the value of the product was $505,100,000 
(the price of flour had declined ten per cent, in this decade). 
The increase shown in the number of establishments ... is 
more apj)arent than real, the great bulk of the flour having 
been made in a decidedly smaller number of mills in 1880 
than in 1870. Since 1880 the blighting effect of the great 
merchant mills upon the small establishments has become 
visible to every one. According to the JIilUy\t iJlrertoyi/ 
for 1884, . . . there were at that time some 22,940 mills in 
the country, a decline of 1,398 from the census figures of 
1880. . . . From 1884 to 1886 . . . the number of milling 
establishments has declined to 16,856, ... a loss in two 
years of more than twenty-six per cent." * The number of 
mills in the South has declined more rapidly than elsewhere. 
In 1880, in Xorth Carolina, 1,313 mills employed only 1,844 
men, but in the same Slate there were only 632 mills in 1886. 
It is said that the number of mills in the country is destined 
to become very much smaller still. Readers can readily 
gather from census and trade reports many similar illustra- 
tions of this concentration of business, which is one of the 
main causes of the existence of present economic problems. 
Self-employment or the employment of others becomes con- 
stantly more dirticult, and the number who succeed inescapini^ 
the condition of employes is relatively diminishing with the 
progress of industry. A few escape from the ranks to be- 
come self-made men, as we say; that is, great and wealthy 
• Albert Shaw, iu The Chautcniqtian for October, 1S87. 



58 AN INTRODUCTION TO POLITICAL ECONOMY. 

employers of hundreds and thousands of workingmen ; but 
they are the exceptions, and must be, so long as present indus- 
trial movements continue. Thrift, frugality, and temperance 
of the masses cannot alter this in the slightest degree. One 
who excels may rise to industrial power, but his superiority 
would cease should others emulate his qualities. This fact, 
which is as simple as multiplication and division, is becoming 
very generally recognized, and produces a wide-spread rest- 
lessness and uneasiness. Many perceive that they can never 
escape from the lot of workingmen, and that the only way to 
improve their condition is to elevate their entire class. The 
solidarity of all interests is felt as never before. 

Corporations. — The study of corporations reveals an- 
other aspect of the industrial revolution. They now control 
a large ])roportion of the wealth of the world and count their 
employes by the million; yet in 1776 Adam Smith gravely 
argues, in his Wealth of Nations, that as a rule corporations 
cannot succeed, and at that time there were few examples of 
successful corporations. The writer does not remember that 
he mentions one example of a successful manufacturing cor- 
poration, and the number of such corporations was certainly 
very few. If the reader will, however, take the trouble to 
look through the columns of any paper devoted chiefly to 
manufacturing interests he will probably find that the names 
of more than half the establishments mentioned show clearly 
that they are corporate concerns. 

But another step has been taken in the evolution of in- 
dustry which tends to minimize the individual still further, 
and to socialize production more than was even dreamed of 
by our forefathers. As corporations are combinations of in- 
dividuals we now have trusts, which are combinations of cor- 
porations, and a great part of many industries is now car- 
ried on under one general management. 

Banks. — The increase in the number of banks has al- 
ready been mentioned, and their existence in everjr town in 
the civilized world is another evidence of the industrial 
revolution. Business could not to-day be carried on without 



}fA IX CA CSKS OF rii'ESEXT ECOXOMIC mOBLKMS. 59 

banks, and the failure of a few large banks at linancial cen- 
ters like New York and Boston is sufficient to cause a wide- 
spread panic, touching even London, Berlin, and Paris. But 
one hundred and iit'ty years ago there Avas not an institution 
in the United States performing the functions of a modern 
bank, and the oldest existing American bank, the Bank of 
North America, in Philadelphia, was not founded until 1781, 

Commerce, domestic and international, means a diiTerent 
thing from what it did a hundred years ago, when Adam 
Smith assured English farmers that even with free trade 
they need never fear any considerable importation of wheat 
and beef from Ireland, on account of the expensiveness of 
transportation! Commerce on the one hand ministers to the 
necessities of life, and not chiefly to luxury, as formerly, 
and on the other hand it intensities international competition. 
The question of the tariff assumes a new importance. 

Free importation of foreign laborers is something of un- 
precedented magnitude on account of cheap transportation. 
The labor market comes to embrace the world. This also 
modifies the tariff question. 

Problem of the "Working Day. — Now this industrial 
revolution is, on the whole, in the direction of progress, but 
it has come so suddenly that it has forced problems on us 
which we have not as yet solved. Take the question of the 
eight-hour day. It has become a live question because, on 
the one hand, machinery enables us to produce more in eight 
hours than formerly in three times eight hours; on the other, 
because those engaged in great factories and other mami- 
factories find modern production more wearing on the nerv- 
ous system, thus predisposing thom to the use of intoxicating 
stimulants, and more deadening to the intellect, ami thus 
ix'quiring more leisure for recreation and the (levelupment of 
the higher faculties. It can hardly be disputed that if all 
able-bo<lied members of society worked either with body or 
mind, that is to say, rendered themselves useful, enough could 
be produced in eight hours, or even less, to satisfy every legiti- 
mate want of every human being. These facts must not be 



60 AN mm OD UCTION TO POLITICAL ECONOMY. 

taken as a conclusive argument in favor of the eigbt-Lour 
day tor those engaged in manufactures — ■manifestly the case 
of agricultural laborers is different in some particulars — but 
they do show what has made the eight-hour day a live 
question. 

Resistance to Improvemeiits. — These changes in pro- 
duction and in distribution, in domestic and international 
commerce, have been followed by an almost infinite variety 
of new phenomena, some of them welcome, others unpleas- 
ant, distressing, and dangerous to the social structure. These 
changes mean displacement of labor and capital, and 
every extensive displacement of labor and capital is pain- 
ful for the time being. If it be said that " in the long run " 
they are beneficial to all, it may be replied that men's 
lives do not last for "the long run." "The short run, if 
the expression may be used, is often quite long enough to 
make the difference between a happy and a miserable life."* 
Every new invention which renders former skill of no ac- 
count is extremely painful to skilled laborers and their 
families, who see their industrial and social station thereby 
lowered. Improvements have often been foolishly resisted, 
but artisans have in this respect shown only common human 
traits. Lawyers have as strenuously, and far more successful- 
ly, resisted reforms which would have diminished their fees. 

Sudden Riches. — The abuse of freedom on the part of 
those at the same time strong and unscrupulous has been a 
fruitful cause of trouble. There may have been an unusually 
numerous class of those at the same time strong and un- 
scrupulous, because manifold changes have suddenly en- 
riched poor people, and often by mere chance, as in the case 
of owners of oil lands, natural gas lands, and farm lands 
where cities have sprung up. Now it is a great strain to a 
man's nature to subject him to the temptations involved in 
new and sudden acquisitions of material power, and inferior 
natures have not been able to endure it. Parvenus have 
given a demoralizing example of soulless, materialistic lux- 
* Caanan's Elementary Political Economy, Part IT, g 15, p. 92. 



MA IX CA i'SES OF PRESENT ECOXOMI C PR ODLEMS. 6 1 

ury, and other inferior natures have tried to ape them in 
their extravagance. Thus lias arisen a race in display which 
has promoted speculation, fraud, and embezzlement. Proba- 
bly also the hardest employers, who have most aggravated 
social troubles, are to be found among the new-rich. 

Confusion of Private and Public Business. — The 
improper extension of private activity to public spheres, 
as in the case of gas supply, electrical service of all kinds, 
and railways, may be mentioned as a fruitful cause of prob- 
lems. V^ast increase of wealth stimulated egoism, and as 
every one was bent on his own concerns few stopped to in- 
quire into the proper lines to be drawn between public and 
private enterprises. Mistakes easily made are with great 
difficulty remedied. The railway and the steamship have 
brought us many good things, and the railway advocate who 
recently entitled an article, " Are Railways Public Ene- 
mies ?" asked an absurd question. Nevertheless, they have 
brought much evil with the good, and are the cause of per- 
plexing pri)blems. The domination of private corporations 
and the seizure by them of public property without just 
compensation are a further cause of uneasiness and anxiety. 

For the relations which exist in modern society, for all 
these new and heretofore unknown conditions, Ave require 
new laws, new institutions, and new ideals in legislation. 

2. The New Importance of Capital. — It may be 
well enough on account of its special significance to single 
out one recent development for more particular treatment, 
and that is the new force indicated by the word capital, and 
brought out still more clearly in the expression "capitalistic 
production." It is this new force which lias created modern 
socialism. It is not meant that capital never existed before. 
It manifestly always existed, because capital simply means 
an accumulation of products of past toil which may be used 
for purposes of further production. What is meant is that 
as a separate, distinct, and mighty force capital as it exists 
to-day is something new. Capital is the point about which 
boeial discussion largely turns, and the phrase "capital and 



62 AN INTR OD UGTION TO POLITICAL ECONOMY. 

labor" is, in some connection or another, continually on 
every body's lips. Yet it is said that the rallying cries 
for and against capital would not have been even under- 
stood in the Middle Ages. It may be asked, "How can 
this be ? " The truth is that no one attacks capital in itself, 
and no sensible man deems it necessary to defend the ex-" 
istence of capital in itself. The socialist who leads a 
crusade against " capital " is as much in favor of the use 
of capital as any one else. Socialists wish to extend the use 
of capital. But capital, accumulations of past toil in the 
shape of food, shelter, clothing, and particularly tools and 
implements, like railways, locomotives, steam-engines of all 
kinds, telegraph and electric plant, and the like, while it in- 
creases the production of goods marvelouslyf has become a 
disintegrating force. Differentiation has accompanied in- 
dustrial development. It is the present capitalistic mode of 
production which is called in question. The capital, that is, 
the tools, are owned by one class and the labor is furnished 
by another class. Now, as we have two distinct classes in 
production, disputes over the division of goods produced by 
those two classes are certain to arise. The finished product 
being given, the more one class receives the less remains for 
the other, and it is mere sophistry to claim that the interests 
of the two can be perfectly identical. The diversity of in- 
terests which manifests itself in very real industrial conflicts 
is an inevitable part of that system which assigns labor to 
one class and capital to another. It has already been re- 
marked that in earlier times this separation did not exist. 
It was obviated by a multitude of contrivances. Slavery 
was one, for that united in the same hands labor and capital. 
Serfdom was another nnd closely allied one. Craft-guilds 
"were another mode. Manufactures were carried on in the 
Middle Ages by labor and capital organized together in these 
guilds, and during their best period the results were satis- 
factory, and harmony prevailed in the main. There was a 
gradual progression from apprentice to journeyman and 
from journeyman to master owning his tools, and all grades 



MAIX CA USES OF PRESEyT ECONOMIC PliuBLEMS. 63 

worked togi'ther. The appront ice lived witli the master, and 
frequently, after passing through the grade of jijurneytnan 
and presenting his masterpiece, married the daughter of the 
master. The very word manufacturer a hundred years ago 
meant one who toiled with his own hands. Adam JSinith 
speaks about growing rich by employing a multitude of 
manufacturers, by which he means simply skilled artisans. 
Custom has been a powerful factor in maintaining industrial 
peace in the previous centuries of the world's history. Cus- 
tom regulated prices and wages, and was often so fixed and 
settled that it was taken as something almost as much a 
matter of course as the laws of the physical universe. 

Plans for Uniting Labor and Capital.— We have al- 
ready seen that nature was the dominant factor in the earli- 
est economic stages. Labor is a minor factor ; and capital, 
except in the most rudimentary form, does not exist. As in- 
dustrial civilization gradually develops, the power of man as 
seen in labor gradually gains a greater and greater ascend- 
ency over wild nature. Labor is assisted by tools and im- 
plements always connected with it, and scarcely thought of 
as existing apart from labor. Labor is the pivotal point of 
production. Time passes. Tools and implements are 
evolved which are a thousand-fold more efficient than those 
of older centuries, but a thousand times more costly. What 
formerly required a year is now done in a day ; but many 
must work together, and great Avealth must own the tools. 
Those helps in production which are represented by capital 
are no longer mere appendages to labor and subordinate to 
labor. They become dominant, and when they become most 
powerful they are owned by a distinct class, the ca})italists. 
Capital thus is the pivotal point of modern economic life, 
and capital causes trouble because it is a separate force. It 
pulls apart men and divides them into sharply pronounced 
classes. This explains the socialistic definition of capital. 
*' A negro," says Carl Marx, tlie great German leader of so- 
cialism — "a negro is a negro. In certain relations he becomes 
a slave. A cotton-spinning machine is a machine for spin- 



64 AN INTR OD UCTION TO P OLITICAL ECONOMY. 

ning cotton. It becomes capital only in certain relations 
Capital is a social relation existing in the processes of pro- 
duction. It is an historical relation. The means of produc- 
tion are not capital when they are the property of the 
immediate producer. They become capital only under con- 
ditions in which they serve at the same time as the means 
of exploiting and ruling the laborer." That is to say, Marx 
limits capital to economic goods in the hands of employers 
at a time when these goods, accumulated by past toil, have 
assumed an importance never before known in the world's 
history. Questions of production on a large scale and on a 
small scale turn on relative efficiency of capital under vari- 
ous forms of organization. Tlie great problem of the future 
organization of industrial forces centers in questions con- 
nected witli capital. The old methods of production have 
gone never to return. How shall the benefits of the old be 
united with the advantages of the new ? There is a wide- 
spread belief that labor and capital must again be united, 
but differences arise w^hen the question of method is raised. 
Many think the problem can be solved along existing lines 
by savings banks, building associations, and the acquisition 
by laborers of shares in the corporations which employ them. 
Others hold that special efforts should be made to induce 
laborers to put their small savings together and to acquire 
capital to employ themselves. Let us say a thousand dollars 
capital is required for each laborer in a certain kind of busi- 
ness, then a thousand laborers would require one million of 
dollars ; a very large sum, but when it is divided into a thou- 
sand pai'ts it by no means appears hopeless. This is what is 
meant by co-operation as ordinarily understood : the supply 
of capital by laborers who are to manage their own business, 
or, at least, to select their own managers. Others, who do 
not believe that the obstacles in the way of self-management 
can be overcome, look to a voluntary sharing of profits by 
employers with their employes; a method which has been 
successfully adopted by many capitalists recently, and which 
thus to an extent unites the interests of labor and capital. 



MA /-V CA USES OF PRKSEyT ECOXOMIC PROBLEMS. 65 

Still other reformers, who do not believe that voluntary 
agreement can ever bring about joint ownership of capital, 
look to the power of government to establish this. These 
are the socialists. Various reforms will be discussed at 
length hereafter. It will be seen, however, that all the proj- 
ects mentioned turn upon discussions of capital, and that 
all those who advocate these projects want to make the la- 
borer at the same time a cai)italist. It is trusted that this 
discussion has made clear what is meant when it is said that 
capital has become a new force. 

3. Possibility of Improvement. — Economic science 
has shown us the possibility of better things for the masses, 
and we cannot rest quietly with things as tliey are. It is im- 
possible. Our responsibility for conditions wliich have been 
mentioned is something we feel in spite of ourselves. We 
may deny it ; we may ask indignantly, "Am I my brother's 
keeper? " But down deep in our hearts and consciences we 
feel this responsibility, and even while denying it we show 
that we feel it by our acts and by our conversation. As 
Schonberg well says: "Our economic life is asocial struct- 
ure for which men are responsible, and its improvement, its 
formation in the manner best for the well-being of the whole 
body of society, is one of the weightiest problems of nations. 
Tliis task becomes more difficult the higher the economic 
stage of development and the greater the nation. It becomes 
so difficult in time that a special science — political economy 
— was developed to aid in its solution." 

4. Higher Ethical Standards. — A fourth cause of 
social problems is clearly related to the third. It is the 
progress of religion, in particular of Christianitj', and the 
development of humane sentiments in all classes. Things 
trouble us now which one hundred years ago we would have 
taken as a mere matter of course. The contradiction be- 
tween things as they are and our social ideal is painful. 

Some passages from Sir Henry Maine's Villuge CommuJii- 
ties will make us understand the significance of the progress 
of Christianity. Sir Henry Maine seeks an explanation for 



66 AN INTRODUCTION TO POLITICAL ECONOMY. 

the fact that what he regards as economic principles are not 
universally received. By economic principles he means self- 
seeking in economic matters: asking the highest price ob- 
tainable for salable commodities and purchasing commodi- 
ties at the lowest price, or buying in the cheapest and selling 
in the dearest market. Sir Henry Maine evidently approves 
of self-interest as a supreme factor, but he notices that a 
moral feeling common in mankind rebels against what he 
styles and what are erroneously supposed to be economic 
principles. Tlie explanation of the reluctance with which 
self-interest as supreme guide is accepted is historical. 
The " market " was originally neutral ground lying where 
"the dominion of two or three villages converged." These 
were the village communities in which custom rather than 
competition regulated prices, but in the market all went as 
strangers, and for the market the idea of "sharp practice 
and hard bargaining " obtained. " Here, it seems to me," 
says Sir Henry Maine, " the notion of a man's right to get the 
best price for his wares took its rise, and hence it spread 
over the world." Then, after further comments on the growth 
of "market law," he illustrates as follows the survival of 
older ideals : " The repeal of the usury laws has made it law- 
ful to take any rate of interest for money, yet the taking of 
usurious interest is not thought to be respectable, and our 
courts of equity have evidently great difficulty in bringing 
themselves to a complete recognition of the new principle. 
Bearing this example in mind you may not think it an idle 
question if I ask, What is the real origin of the feeling that 
it is not creditable to drive a hard bai'gain with a near rela- 
tive or friend ? It can hardly be said that there is any rule 
of morality to forbid it. The feeling seems to me to bear 
the traces of the old notion that men united in natural groups 
do not deal with one another on principles of trade. . . . 
The general proposition wliich is the basis of political econ- 
omy made its first approach to truth under the only circum- 
stances which admitted of men meeting at arm's length, not 
as members of the same group, but as strangers. ... If the 



MA AV CA USES OF PRESENT ECONOMIC PROBLEMS. 67 

notion of getting the best price for movable property lias 
only crept to reception by insensible steps, it is all but cer- 
tain that the idea of taking ihe highest obtainable rent for 
land is relatively of very modern origin. The rent of land 
corresponds to the prii-e of goods, but doubtless wasintinitely 
slower in conforming to economical law, since the impression 
of a l)rotherhood in the ownership of land still survived when 
goods had long since become the subject of individual prop- 
erty. So strong is the presumption against the existence of 
competitive rents in a country peopled by village communi- 
ties that it would require the very clearest evidence to con- 
vince me that they were anywhere found nnder native con- 
ditions of society. ... It is notorious that in England, at 
least, land is not universally rack-rented.* But where is it 
tliat the theoretical right is not exercised? It is substan- 
tially true that, where the manorial groups substituted for 
the old village groups survive, there are no rack-rents. What 
is sometimes called the I'eudal feeling has much in common 
with the old feeling of brotherhood which forbade hard bar- 
gains." f 

Let us now endeavor to understand the significance of 
these qualifications. 

Political Economy and Ethics. — Political economy is 
supposed by some to be the science of " sharp practice and 
hard bargaining." It is held to asstmie the existence of 
sharp practice and hard bargaining and to justify both, as, 
on the whole, Sir Henry Maine does. Yet we see that these 
so-called economic principles could arise only when men met 
as strangers, and that even up to the present time they are 
incompatible with the feeling of brotherhood. We may be 
assured as often as one pleases that it is creditable to '* drive 
a hard bargain with a near relative or a friend," but it is of 
no avail. There is within man an ethical feeling, which has 

• Rack-rent is tlic snme tliiiip as compolit.ivc rent. It means simply tlie 
hiphcsi rent wliich can bo obtained. The ordinary city rents in tlie United 
Slates are rack-rents. 

f ViVnge Communih'ea, Lecture VL 



68 AN INTROD UCTION TO POLITICAL ECONOMY. 

grown up as a result of intuition combined with historical 
experiences, and which has been clarified by religion, telling 
us that in our economic life as well as elsewhere we must 
seek to promote the welfare of our neighbor and brother. 
This ethical feeling is not to be lightly regarded, for it is 
the best product of centuries of striving of the best men. 
Now Sir Henry Maine looks to a disappearance of this feel- 
ing of brotherhood for the triumph of the " market " where 
only sharp practice and hard bargaining obtain. It may be 
that the first effects of modern improvements in the means 
of communication and transportation have been to destroy 
or rather greatly to weaken the feeling of brotherhood, and 
old local groups have doubtless been broken up and their 
members scattered. It has become easy to wander off to any 
quarter of the world. But still further improvements in the 
means of communication and transportation, especially, per- 
haps, the national and international postal systems, are drawing 
all parts of the world closer together than ever before, and in- 
stead of a local group of brothers to Avhom all strangers are 
aliens the fraternal feeling is extending and embracing all 
men. With an extension of fraternalism there is at first a 
great weakening of the feeling, but economic bands and the 
progress of Christianity, which teaches that all men are broth- 
ers, are rapidly strengthening it. An economic world-union 
of brothers is in the process of formation, and this explains 
a large pai't of our anxiety and uneasiness with respect to so- 
cial conditions. It is of no avail to say that business is ex- 
cluded from the domination of ethical principles, for it is 
precisely in our economic life that ethical principles of any 
real validity must manifest themselves. It is only in an im- 
perfect condition of society that sharp practice and hard bar- 
gaining can ever appear to men to be morally right. There 
is a vei'y general determination to make all departments of 
social life conform to ethical principles, and this is what is 
meant by the phrase used by the Christian, " The world is the 
subject of redemption." 
Absolute and Relative Deterioration of the 



MA ry CA USES OF PRESENT ECOXO.UIC PROnLEMS. 89 

Masses. — We have oxaniined certain i^fiicMal causes for tlie 
exislfiiee of ttocio-ccoiioinic problems. Acconipanying each 
of these a multitiule of forces may be at work aggravating 
or mitigating troubles. A delerioration in the economic 
situation ol' the masses may be a cause of discontent and 
agitation, and this dett'rioration may be of two kinds. It 
may be ab-oliite or relative. Al»soIutc deterioration means 
conditions poor^'r in themselves without regai-d to the eco- 
nomic situation of others or the changed re<iuirenK'nts of 
new times. Absolute deterioration is the exception, but still 
it is not so uncommon as is generally suj)posed. Change's 
involving displacements of labor and capital injure large 
numbei-s, and of these many never regain tlieir old position. 
Economic evils when of a certain magnitude tend toinciease 
s])outaneously, as it were, and to aggravate themselves. 
Children are not educated, a lower standard of life is taken, 
and progress ceases. This absolute deterioration has, during 
the last tifty years, been exceptional, though not so in earlier 
ages, and we have no warrant for the hypothesis that in the 
future it will not again become common, unless special eflForts 
are made to prevent it. 

Relative Deterioration. — A relative deterioration is far 
commoner. This means that large sections of the population 
have not kept pace in their economic progress with the ad- 
vance of wealth on the one hand, on the other with the de- 
velopment of tlieir rational wants and asj)ii-ations, to say 
nothing of the craving for mere luxuries which has been 
stimulated by the lavish expenditures of the new-rich. We 
arc here concerned with higher demands of people, and, })ro- 
viiluil these take a right direction, they are to be welcomed, 
for they are a condition of civilization. Missionaries among 
degraded heathen find it necessary to awaken wants, even if 
for mere ornament^, in order to incite the savages to .action, 
and this is the first step in progress. Every succeeding step 
in civilization is accompanied by new wants, and unless these 
are awakened civilization comes to a stand-still, as seen 
among portions of the Canadian French in the Province of 



70 AN- INTR OD UCTION TO POLITICAL ECONOMY. 

Quebec, Canada. Professor Drummond speaks of the few 
wants of the Africans as an obstacle in the way of the de- 
velopment of their country. 

Wants and Civilization. — This has a bearing on many 
present problems in the United States. We do not want 
among us a people with few wants and no asijirations. They 
•can only serve as a drag on the progress of American civili- 
zation. At the same time not all wants are legitimate or 
desirable. Wants are graded, and as man advances material 
wants ought to give way to higher social, mental, and spirit- 
ual wants. Materialism indicates a dangerous tendency of 
wants in the United States to-day. What is needed is not 
to try to check the growth of wants, but rather to direct the 
current into proper channels. 



A 



CHArTER IX. 

SOME GENERAL FEATURES OF THE ECONOMY OF THE MODERN 

NATION. 

Three characteristic features of modern economic life are 
to be found in llie rohilions which it bears (1) to freedom, 
(2) to ethics, and (3) to the State. These will be examined 
briefly in the order named. 

1. Economic Freedom. — Economic freedom must be 
regarded as merely relative. It has been absolute only in 
that condition of anarchy in which savages have lived previ- 
ous to organized government. A re-introduction of absolute 
liberty Avould mean a return to primitive anarchy, and any 
idea of realizing it is a mere Utopia. This freedom is rela- 
tive. Legal restrictions are exceptional; in particular, such 
legal restrictions as are felt to be burdensome, because, as 
Sir Henry Maine has shown, obedience to law is in civilized 
nations unconscious. Law has to such an extent formed us 
that we for the most part spontaneously obey it. We can- 
not move without law. It is a condition of the existence of 
modern civilization. Law makes it possible for us to live 
our lives in security. Do we own a house ? That implies 
law. Do we go to business every day in a street-car ? The 
construction of street-car lines is always made possible by 
laws. Do we read telegrams ? We can do so only because 
law has made possible the existence of telegraph companies. 
Do we send and receive letters? It is through an institu- 
tion, the creature of law, owned and operated by the govern- 
ment. But, after all, this is not felt to be a limitation of 
freedom. It is only in this state that freedom can be real- 
ized, as has been shown by a distinguished American writer, 
Dr. '>rulford, in liis wurk, The N'ltlon. Yet nearly all liiw.s 



T2 AN INTRODUCTION TO POLITICAL ECONOMY. 

cany with them a " Thou shalt " and a " Thou shalt not." 
Restrictions which do exist are now general, and in the inter- 
est of the whole people, not of a few privileged individuals 
or classes. Their aim as a whole is to prevent an abuse of 
liberty ; to keep the strong and cunning from injuring others, 
thus to increase real liberty. 

Restrictive Laws May Increase Real Freedom, — 
The way in which restrictive laws often increase real freedom 
may be illustrated by an occurrence in Baltimore. The barbers 
of that city wished to close the barber-shops on Sunday. One 
barber could not close his shop unless all did the same, as he 
would be likely to lose regular customers. A voluntary agree- 
ment was not felt to be sufficient security for Sunday observ- 
ance. The barbers accordingly raised several hundred dol- 
lars to secure the passage of an ordinance compelling them to 
close their own shops. They were successful, and thus the 
law enabled them to carry out their own desires. They were 
enabled to do what they pleased, and thus restrictive legis- 
lation increased freedom. The writer has frequently heard 
a photographer in New York who did business on Sunday 
lament grievously the necessity for Sunday labor, and express 
a willingness to contribute one hundred dollars to secure the 
passage of a law closing all photograph galleries. It is thus 
seen that restrictions to liberty arise outside of the law, and 
that the law may increase liberty by helping us to remove 
these restrictions. 
_/ Increase in Government Regulations. — We speak 

continually of the increase of freedom, and imagine often that 
we have been moving in the direction of no-government. It 
is probable, however, that laws were never more numerous 
nor more far-reaching in their consequences than to-day. 
Let us take the law under which national banks ar^ to-day 
organized. We consider that law as an excellent one, and 
never speak of it as an infringement on liberty. Yet every 
step in the life of a national banking establishment is taken ac- 
cording to law. The amount of capital is prescribed, the man- 
ner of investment of a part of the capital is rigidly prescribed. 



FEA TUJiES OF THE ECONOMY OF TUE MODERN NA TION. 78 

nnd tho investment of tlicwiioleof it is limitorl, the size of each 
sliuie is j)rescribeil, the amount which must be paid in is pre- 
scribed, the officers to bo elected are prescribed, the voting 
])0\ver of shares is prescribed. After the bank comes into 
being it is ordered five times a year, and four of tliese times 
without previous warning, to publish a minute statement of 
its condition in the local press, anil examiners may without 
warning be sent from Washington to inspect its books. It 
is necessary to examine into these j)henomcna. [t may be 
said that the laws are now neither less numerous nor less 
powerful than formerly, but wiser. They construct a frame- 
work within which we willinglj' move. 

Laws no longer Special but General. — Laws formerly 
were often special and not general, and aroused animosity 
because they did not bear on all alike. The laws formerly- 
authorized A. to do what B. was expressly forbidden to do. 
A. might follow the trade of a carpenter, wliile B. was ex- 
cluded. C. might establish a bank, but D. would be thrown 
into prison if he attempted to do the same. Laws of the 
last century and previous centuries were individual in their 
application and became oppressive. Banks serve again as 
an illustration. Early in this century, in all of the States of 
the American L^nion, it was necessary for any body of men 
desiring to engage in the banking business to secure a spe- 
cial legislative charter. Now any body of men who comply 
with the laws for the formation of banking institutions may 
organize a bank. The restrictions in the laws are of a sever- 
ity that would not have been tolerated fifty years ago, but 
tliey bear on all alike; they are framed in the interest of the 
people as a whole, and are not felt to be oppressive. Laws 
have not been abolished, but exclusive privileges have been, 
and this is the peculiar triumph of the nineteenth century 
in legislation. We have established the principle that legis- 
lation must be general and not special. 

What is Freedom? — It is well in this connection to re- 
flect on the real nature of freedom, the absence of restraint 
on our actions. Freedom is negative. It may be compared 



74 AN INTR OD UCTION TO POLITICAL ECONOMY. 

to an empty vessel. Its value depends upon Avhat we put in 
it. Absence of restraint in itself can hardly be called a good 
in itself. It may be a curse or a blessing. It gives oppor- 
tunity for the development of our faculties to a full and 
harmonious whole; yet, if we are not ripe for it, it may in- 
volve our degradation. Children are not fit for it, because 
under the controlling influence of a higher authority their 
development can better be secured. Not all nations are fit 
for it. The Declai'ation of Independence was the assertion 
before the world that we were fit for free and uncontrolled 
self-development. American democracy means the ripeness 
of Americans for political freedom. 

Economic freedom manifests itself in five different ways: 
a.) Freedom of labor in three respects: 1. Freedom of 
person, as seen in the abolition of bondage and the establish- 
ment of the principle of legal equality. Tliis freedom of 
the person has become universal in the civilized world only 
within the present generation. 2. Freedonx of movernent cmd 
acqidsition. This means the right to settle where you please 
and to follow any pursuit you please, so far as any special 
and individual legal restrictions are concerned. Legal re- 
strictions of a general nature framed in the interests of the 
public welfare exist every-where, and they are, on the whole, 
continually increasing in severity. A recent decision of the 
Supreme Court of the United States has declared that they 
violate no provision of the Federal Constitution. Some of 
these restrictions, as upon those engaging in certain occupa- 
tions, like banking, have been mentioned. To engage in any 
one of many kinds of business it is necessary to comply with 
certain prescribed rules and regulations. The business of a 
plumber in Maryland and elsewhere is an example. The 
business of an apothecary is another, and in other countries 
the requirements are severe, and they should become severer 
in all our States. Professional pursuits, like the practice of 
law and medicine, serve as further examples. Formerly, 
that is, during the Middle Ages, it was necessary to belong 
to some guild, or trade corporation, to engage in any one of 



FEA TUBES OF THE ECONOMY OF THE MODERN NA TION. 75 

the leading iiuliistrial occupations, and these associations 
regulated, generally under legal supervision, the conditions 
under which businesses should be followed. 

The Freedom of Movement for working people has be- 
come general over the civilized world only within the presmt 
century. It did not exist in England when Adam Smith 
wrote his Wealth of Nlitio?is. It is inten-sting to note that 
restrictions on the freedom of movement arose in connection 
with the laws for the relief of the poor. Each parish was 
anxious to avoid the care of the poor of other parishes, and 
many parishes endeavored to escape their fair burdens by 
sending away their poor to be supported by other parishes. 
Consequently, it was provided that a workingman should be 
required to demonstrate his ability to support himself without 
help from the parish before he was allowed to settle, or that 
he should bring certificates from his former parish authori- 
ties by which these bound themselves to become responsible 
for his maintenance should he become a public charge, and 
for his removal to his former home. This was so difficult a 
thing to do that it kept a large part of the laboring popula- 
tion stationary in the i)arishe8 where they were born. These 
laws regulating residence were called laws of settlements, 
and of the English law of settlements Adam Smith goes so far 
as to say : " There is scarce a poor man in England, of forty 
years of age, I will venture to say, who has not in some part 
of his life felt himself most cruelly oppressed by this ill-con- 
trived law of settlements." * 

" Tramp Laws."— It is Avell to notice recent revivals of 
restrictions on freedom of movement of wage-earners. The 
abuses of this freedom in the United States have led in 
many of our States to the ])assago of " tramp laws," which 
imprison a man who wanders about the country without 
financial resources. Such a person is called a vagabond, and 
in cases may be punished even by a year's imprisonment in 
a penitentiary. In Southern States like Georgia he is put in 
the chain-gang, and compelled to work for the State. There 
* Book I, cliap. X, Purl II. 



76 AN INTROD UOTION TO POLITICAL ECONOMY. 

can be no doubt that the public suffered severely from vaga- 
bonds, and that women in rural districts were insulted and 
even assaulted by unprincipled tramps. Property was de- 
stroyed and stolen. Incendiarism was in many instances 
traced to tramps. The European laws of settlements grew 
up in efforts to correct real evils, and in precisely the same 
manner we are erecting barriei's against freedom of move- 
ment without, perhaps, appreciating their full significance. 
While the evils inflicted in portions of the country were in- 
tolerable, we should in matters like this proceed with caution. 

Many workingmen in America claim that they have been 
cruelly oppressed by tramp laws; that they have been mis- 
used and even imprisoned for efforts to seek an opportunity 
to gain an honest livelihood. There can be no doubt that 
innocent poor people have suffered under tramp laws. 
Workingmen have felt this so keenly as to demand in some 
of the platforms of their political parties the abolition of all 
tramp laws, which is undoubtedly going too iar. Labor or- 
ganizations, like the International Cigar Makers' Union, for 
example, have partially remedied the evils of these laws and 
encouraged the free movement of labor by providing funds 
for traveling members out of work. Labor papers and labor 
organizations help to keep workingmen informed of oppor- 
tunities where work may be procured, and thus still further 
promote the free movement of labor. 

Foreign Immigration.— New limitations of the freedom 
of international movements of workingnien are noteworthy. 
The anti-Chinese legislation of the United States and Aus- 
tralia is designed to keep from these countries cheap foreign 
laborers, and is the most marked example of this recent re- 
vival of ancient restrictions. The United States law which 
forbids Americans making contracts with foreign laborers 
to come to this country to work is another example. Ef- 
forts are being made still further to restrict free interna- 
tional movements of working people. 

3. The freeclo^n of contract with respect to labor is 
the third form in which the freedom of labor manifests it- 



FEA TUNES OF TUE ECONUM Y OF THE MoDEJLV A^.l Tfoy. 77 

self. This iiK'uns the legal equality of employers and eiri- 
ploycs iii labor contracts. This in a general way may ho 
said to date from llie Frendi Hevolutioii, altliough it was not 
universally introduci'd in civilized comitrics until nnurh later. 
Adam Smith and the men of his day expected from it benef- 
icent results, which have been at best only partially real- 
ized. Philosophers of the latter part of the eighteenth 
century assumed the natural equality of all nu'ii, and held 
that oppressive inequalities were the result of legal institu- 
tions. It has become evident, however, that their assump- 
tions were not valid. Economic inequalities place the ordi- 
nary employer in a very ditTcrent position from the ordinary 
employe, and thus the natural tendency is for the industri- 
ally strong to show their superiority in free labor contracts. 
The industrially strong in all countries are consequently 
ardent champions of the freedom of the labor contract. 
Working-men attempt to equalize conditions preliminary to 
the arrangements of labor contracts by the fonnation of labor 
organizations, in order that, as capital speaks solidly through 
one rejiresentative, as, for example, the president of a street- 
car company, labor may also present itself as a unit through 
some chosen leader. 

Restrictions on Labor. — The freedom of the labor 
contract exists nominally in countries like France, Germany, 
England, and the United States. Evory-whcre, however, 
there will be found restrictions on the right of combinations 
of laborers to make their own bargains in their own way, to 
work or to refuse to work, to select their own companions 
during work, and the like. V^Theso restrictions are nowhere 
so numerous on capital combina t i on^ The effect of recent 
judicial decisions in the United States has been still further 
to restrict the freedom of tlie labor contract where organiza- 
tions are concerned, and to-day this freedom is more limited 
in the United States than in England, probably not than in 
France, (jrerniany, or Italy. 

b.) Freedom of Landed Property. — Freedom of landed 
property means tlio right to buy ami sell landed property 



78 AN INTRODUCTION TO POLITICAL ECONOMY. 

without legal restrictions. This again is a new right, and it 
is not fully recognized in England to-day — ^where a great deal 
of the land is entailed. It was introduced in Prussia early 
in this century by the reforms of the statesmen Stein and 
Hardenberg.* It is sometimes csdled free trade in land. It 
does not exist Avith respect to lands granted by act of tlie 
last Congress to Indians, for they are inalienable for twen- 
ty-five years. Among the Jews it was not known. Jehovah 
was the one in whom the title to their land was vested, and 
the usufruct was granted to families who could pai't with it 
only temporarily. It was returned to them in the year of 
jubilee. It is in this connection instructive to read the Mo- 
saic legislation with respect to land. There are those who 
think that the nineteenth century has yet much to learn 
fiom Moses, Many, in fact, are dissatisfied with existing 
land laws, and think that free trade in land as now known 
does a vast amount of iieedless harm, and is a robbing of the 
masses for the benefit of the few. This opinion is not shared 
by the majority of the best thinkers on socio-economic 
topics. Perhaps there is a wide-spread feeling that land 
laws ought to be amended more or less, without, however, 
in the main changing the fundamental principles on which 
they rest. 

c] The Freedom of Capital -with Respect to 
Loans. — By the freedom of capital with respect to loans 
is meant the abolition of prohibitions of interest and of 
restrictions on the rate of interest. The Mosaic legisla- 
tion prohibited all interest, for usury in older literature 
means not merely excessive interest but any interest at 
all. Moses allowed the taking of interest from strangers, 
but in certain special cases it was unlawful to take it even 
from them. The greatest philosophers and statesmen of 
classical antiquity, and of the Christian era until modern 
times, have been opposed to the taking of interest, and the 
laws have reflected more or less perfectly their views. lie- 
cent opinions have favored interest, and it is now almost 
* See Seeley's Life and Times of Stein, vol. ii, p. 20. 



FEA TURES OF THE ECONOMY OF THE MODERN NA TION. 79 

universally taken on loans, and a man like John Raskin, 
who hal)ilually makes loans without interest, is regarded as 
very peculiar, if not erratic. But the rate of interest is still 
generally regulaleil and limited. Any rate of interest is 
legal ill England, but restrictions jjrobably exist in all other 
countries. Restrictions on the rate of interest were abol- 
ished in Germany, but were re-established on account of 
tlie abuses of the freedom. A fixed limit was not placed 
to lawful interest, but the judges have been given a wide 
discretion to determine what is, under the circumstances 
of the particular case, excessive, and therefore usurious, 
interest. 

Restrictions on the rate of interest on loans exist in most 
of the States and Territories of the American Union. Thei*e 
are, according to a recent statement, only eleven out of the 
forty-seven States and Territories where no limit is fixed to 
the rate of interest, and thirteen where no penalty for usury 
exists. 

d.) Freedom in the Establishment of Enterprises. — 
The right of individuals to establish enterprises on comply- 
ing with general regulations is of a far more ancient date 
than the right of combinations of individuals to engage in 
industrial undertakings. These combinations of individuals 
usually take the form of joint-stock associations, generally 
called in the United States simply corporations. The right 
of free establishment of corporate enterprises on compliance 
with provisions of general laws is a new right, barely a gen- 
eration old. It did not exist in England until 1855, and in 
some of our American States it dates from an earlier period, 
and in others it is of later origin. It dates in Germany from 
the formation of the empire in 1871, and in Austria it does 
not exist yet. It formerly required a special law to enable 
a body of men to associate themselves for productive pur- 
poses, especially if the liability of associates was limited. 
The older idea in the United States and elsewhere was that 
combinations of capital equally with combinations of labor 
were dangerous ; but there was this difterence: special laws 



80 AN INTR OD UCTION TO P OLITl GAL ECONOMY. 

were passed from time to time authorizing the formation of 
associations of capitalists, but not of laborers. Each fresh 
application for a charter of incorporation was presumed to 
be examined on its merits. If a body of men desired to 
form a bank, the legislature was supposed to examine into 
their financial and moral fitness for the enterprise, perhaps 
also into the need for such an enterprise, and to grant a 
charter only when all the conditions of the contemplated 
undertaking were satisfactory. It never worked well, 
especially in more modern times. With the best will the 
task transcended the powers of legislatures, and the best 
will was often wanting. Bribery on an immense scale was 
frequently resorted to, and charters were also made a part of 
the system of political spoils. Thus early in this century it 
was considered as an unwarrantable presumption for the 
Democrats in New York State to expect a bank charter 
when the Federalists were in office, and when the Democrats 
were in office the Federalists fared no better. It was only 
by stratagem that Aaron Burr secured a bank charter when 
his political opponents were in power in New York. He ob- 
tnined a charter for a water company, one clause af which, in- 
nocent enough at first glance, really gave the company power 
to engage in the banking business. The system of special 
charters has been for the most part abandoned, and is in 
some parts of the industrial field being still further limited. 
Conditions are severer and more far-reaching than formerly, 
but are general in their application. 

Restrictions on the Establishment of Enterprises. 
— Important exceptions to the modern rule must not fail of \ 
notice. The right to supply certain services to cities, likei 
light, water, and transportation of passengers by street-car 
lines and elevated railways, is secured by special charter, 
act, or ordinance, and often an explicit monopoly is granted 
with what must in the nature of the case be a de facto monop- 
ol}''. All of the evils connected with the old general system 
of special charters is coimected with special privileges granted 
to parties to engage in these enterprises, and many new evils. 



FEA TURKS OF THE ECONOMY OF THE MODERN NA TIO.V. 81 

Thi'y are in one \v;iy or another connected with most of tlu; 
evils of inmiicipal politics. As free conipotilion is impossi- 
ble in the case of electric lights, gas, water, and street-car 
and elevated railway service, it has seemed to many that the 
only way to correct these evils is to abolish the corporations 
engaged in such undertakings, and tliat can only be done 
by turning over these services to the municipalities them- 
selves; and this opinion is shared by the author. A re- 
markable movement in this direction has already begun, 
and the results thus far experienced have been most 
beneficial. Water supply is, fortunately, nearly every-where 
in the complete control of cities. Gas-works are mostly 
owned by municipalities in Gerniany, and quite largely and 
to an increasing extent in England. The gas consumed in 
American cities is mostly supplied by private parties, Phila- 
delphia, Richmond and Alexandria, Virginia, and Wheeling, 
West Virginia, being exceptions. But there is every reason 
to expect an increase in the number of cities owning and 
operating gas-works in a near future. Electric lighting plants 
are often owned by cities, and English laws look to the ulti- 
mate acquisition of private establishments. Twenty or thirty 
American cities, as Painesville and Xcnia, Oliio; Chicago 
and Champaign, Illinois; Bay City, Michigan; Dunkirk, New 
York; Easton, Pennsylvania; Lewiston, Maine, own and 
operate electric lighting plants, and with the most satisfac- 
tory results, the general cost for arc lights of two thousand 
candle-power burning all night being from twelve to twenty 
cents per night, whereas private corporations charge from 
forty to sixty cents, and even more. 

New limitations on the freedom to engage in railway en- 
terprises are now being enacted in the United States, while 
the freedom of enterprise has in other countries for some 
time been abolished. Parties in Massachusetts who desire 
to build a new railway must show that there is a public 
need for the undertaking, and a similar law has been urged 
upon the authorities of New York State. This prevents a 
great deal of waste, in doing away with the construction of 



82 AN INTRODUCTION TO POLITICAL ECONOMY. 

parallel and other useless lines of railways, but as it adds 
to the value of existing railway property by removing pos- 
sible competitors it would seem that it is only proper that 
in the form of taxes on gross revenues or otherwise the 
railways should be made to pay for the special privileges 
they enjoy after the abolition of freedom in the establish- 
ment of railway enterprises. It should never be done 
until public control over these enterprises has been estab- 
lished on the firmest basis. 

Jt may, perhaps, he laid down as a general rule that when 
for any class of business it becomes necessary to abandon 
the principle of freedom in the establishment of enterprises 
this business should be entirely tiirned over to the governme7it, 
either local, State, or federal, according to the nature of the 
undertahing . 

e.) Freedom of the Market. — The freedom of the mar- 
ket means the right to buy and sell where one pleases. This 
is another new right and one not every-where recognized. 
We accept this principle in the United States with respect to 
domestic trade, but not with respect to foreign commerce, on 
which we lay heavy taxes for the express purpose of restrict- 
ing it. Restrictions on domestic trade were the rule rather 
than the exception in the last century, not only in the Ameri- 
can States but in Europe. Our Federal Constitution of 1789 
established in the United States the principle of freedom of 
domestic trade, and reforms accompanying or following the 
French Revolution led to its general establishment else- 
where. England abandoned the policy of restricting foreign 
commerce in 1846, and it was then expected by free-traders, 
as those are called who believe in the principle of freedom, 
that other nations would speedily follow her example 
Those anticipations have not been realized, but, on the con, 
trary, new restrictions have since then, especially in recent 
years, been established, and old restrictions sharpened. 

The cause has been the policy of protection, which will 
be discussed hereafter. Protection achieved a great triumph 
in the abandonment of free trade principles and the estab- 



FEA TUBES OF THE ECONOM Y OF THE MODERN NA TION. 83 

lishmcnt of a high tariff by Corinany in 1S70, ami the jji-csi- 
dential election of 1888 in tho United States was by many 
reganled as a tiiuni|)h of |>rotL'Ction. 

Advantages of Competition. — Tho advantages of gen- 
eral freedom of the market are more talked about than tlie 
disadvantages, and are consequently better understood. 
Under the system of freedom capital and labor tend to flow 
to places where they are most needed, and that is generally 
where they are most productive. The absence of restrictions 
spurs the industrially gifted on to activity in enterprises, as 
the rewards of success are enormous. Competition develops 
new forces, and reveals new resources of economy, excellence, 
and variety of products. The modern man, like the modern 
trotter, has been developed in the race-course. Every one 
must be active and alert or suffer loss. Progress in techni- 
cal processes has been rapid, and the formation of new en- 
terprises has been encouraged. 

Disadvantages of Competition.— When we come to 
S)»eak of the disadvantages of the modern system of free- 
dom, that is to say, of competition, it oceurs to us that the 
moral atmosphere of a race-course is not a wholesome one. 
Competition tends to force the level of economic life down 
to the moral standard of the worst men who can sustain 
themselvis in the business community. Adulteration of 
])roducts introduced willingly by the unscrupulous is fol- 
lowed reluctantly by a higher type until it becomes general. 
Long hours, child labor, and labor of married women in 
stores, in factories, and even in mines underground, are all 
brought about in a similar manner. Cheap prices must be 
met by cheap prices. A tendency to reduce wages is like- 
wise explained. On the other hand, when the industrial 
situation favors labor, competition is apt to raise wages, es- 
pecially where well-managed labor combinations exist. 

Quality also often suffers under the race for cheapness. 
The report to the (iei-man government on the exhil)its of 
Germany at our Centennial Exhibition in 1870 was ^^ schlecht 
iifnf /^//Z/V/," ba<l and cheap. 



84 AJV INTRODUCTION TO POLITICAL ECONOMY. 

Bubble companies and all sorts of swindles defraud and 
degrade multitudes, and the good suffer with the bad. Ac- 
tual monopolies oppress the people worse than former legal 
m^onopolies, because comparatively few men have as yet 
learned to distinguish between the industrial functions of 
private individuals and corporations and those of public 
bodies, such as city, State, and Union. 

Tiie danger of very unequal distribution of wealth, and 
wide gaps between social classes so that they are to one an- 
other like foreign nations, are evils closely connected with 
those already enumerated. 

Social Evils also Economic. — It may be argued that 
some of these evils, while social, are not economic, and that 
others are purely moral, and that consequently they do not 
fall within the premises of political economy. As has been 
said, however, the economic department of social life cannot 
be separated from other great social life-spheres. Social and 
moral evils react on wealth-creation, and that in a very sim- 
ple manner. The chief factor in production is the human 
factor, and whatever affects this will certainly influence 
wealth-creation. 

We must remember in all this discussion that the pro- 
duction of goods is only a means to an end, and to shovv 
that a practical measure will create wealth is not enough 
to commend it. The main question is. What effect will it 
have on the entire life of the nation, also of humanity ? 
The true starting-point in economic discussions is the ethical 
community, of which the individual is a member. 

Remedies for the Evils of Economiic Freedom.. — ■ 
We are not helpless in the face of economic evils connected 
with freedom. Combinations of interested parties, like work- 
ing-men in their labor organizations, also capitalists in their 
chambers of commerce, merchants' and manufacturers' as- 
sociations, and the like, can set themselves against the evils 
under which we suffer, and some of the worst of them can 
be cori'ected by laws, and thus the moral level of competition 
can be raised. Sunday work serves as an example. Also 



FKAlTIiES OF THE ECOXOM Y OF THE MODERN XA TION. S5 

laws directed against the employment of children under a 
certain age in factories. These laws when enforced by 
fai'torv insipoctors and other suitable agencies do not destroy 
competition. A. and B., former rivals, are still left to com- 
pete with each other, but under altered conditions which ap- 
ply alike to all. The moral level of competition has been 
raised. 

There is a danger of the injurious development of vast es- 
tablishments and the crushing out of the small man under 
the system of freedom. Co-operation can do something to 
arrest this evil. It has already achieved considerable results 
in England, Germany, France and the United iStates, and is 
destined to accomplish more in the future. A great deal 
can be accomplished, not by resisting powerful economic cur- 
rents, like the tendency of production to concentration, but 
rather by guiding and directing the current in such a manner 
as to minimize the evils connected with it and to maximize 
the good. 

It has been laid down as a general rule by an English 
writer that experience has demonstrated two things: the ad- 
vantages of freedom in trade and commerce ; the necessity 
of restrictions in the field of labor and in behalf of labor. 

2. Ethics and the Economic Life of Nations. — 
It is recognized now that there should be no contradiction 
between ethics and economic life, and that ethics demands a 
truly civilized life for each individual ; demands that so far 
as this is possible each should be supplied with economic or 
material goods so as to satisfy all his reasonable wants and 
to give opportunity for the completest development of all 
his faculties. It is further demanded that the i)roduction of 
goods should so be conducted as to minister to the advance- 
ment of the producers and to the advancement of society in 
general. There has been a return of political economy in 
this reKpeet, as in so many others, to older and sounder con- 
ceptions. We have gone back to the Greeks, notably to 
Plato and Aristotle, who subordinated all economic intjuiiies 
to ethical considerations. They never asked merely, '' How 



86 AN INTRODUCTION TO POLITICAL ECONOMY. 

can a nation become wealthy ? " but " How can the economic 
institutions and arrangements of a nation be so ordered that 
the highest welfare of all citizens may be best promoted ?-^ 
This mode of thought was common, it is scarcely too much 
to say, to all great writers on socio-economic and political 
topics until a wave of revolutionary materialism in the last 
century swept over tliQ world, and since then there has been 
an effort to divorce ethics and economics, which practically 
means the subordination of ethics to economics. The higher 
social life-spheres have been asked to minister to the lower, 
the feet have been exalted above the head, and men discuss 
social questions, like child labor and Sunday work, in parlia- 
ments and legislatures in such a way as to show that the 
main thing in their minds is the greatest possible wealth- 
creation, and that they think humanitarian considerations — 
very likely called sentimentalism — ought to bend to that. 
It is necessary to show that popular enlightenment will add 
to the productive powers of the community, or will help to 
protect wealth against depredations, in order to secure ap- 
propriations for public schools; and any thing so far removed 
from the lowest material considerations as art and music is 
considered in most instances as an improper field for the 
fostering care of government, at least in the United States, 
and politicians turn away disdainfully from the highest 
interests. 

Ideals for Economic Progress, — Happily there seems 
to be a revival of truer conceptions, and, as said, there is a 
tendency to go back to the best thought of earlier periods. 
Several economists have presented social ideals to which eco- 
nomic life should, so far as may be, minister. Four of 
these will be presented herewith. The following is quoted 
by Professor Fawcett in the sixth edition of his Political 
Economy : " That only true and most supreme happiness — 
the development of the human faculties to a harmonious and 
consistent whole." 

Professor Schafile, a German writer, in his answer to the 
question, " What is the best distribution ? " presents a social 



FEA TLTIiES Of THE ECONOMY OF THE MODERN -V.l TION. 87 

ideal. "It is," says he, " that distribution of income Avbich 
brings society as a whole, and in all its subdivisions, nearest 
to perfection." * 

Professor Wagner, the distinguished Berlin professor, 
gives us this ideal of industrial society : " Large national 
resources and large national incomes, and at the same time 
such a distribution of the same that even the less favorably 
situated may be certain of a sufficient income to satisfy all 
necessary wants and to enable them to participate in the 
enjoyment of the moi'e important higher goods of our age." f 

A well-known Belgian professor of political economy pre- 
sents this ideal in his treatise on i)olitical economy : " The 
complete and harmonious development of every faculty." 

3. Economic Life and the State. — The third and at 
present the last feature of economic life to be mentioned is 
its relation to the State. 

When John Stuart Mill attempted to enumerate and class- 
ify the functions of the State he found that only one thing 
was common to them all, and that was public expediency. 
These are his words : "The admitted functions of govern- 
ment embrace a much wider field than can easily be included 
within the ring-fence of any restrictive definition, and . . . 
it is hardly possible to find any ground of justification com- 
mon to them all, except the comprehensive one of general 
expediency." 

Utility the Criterion of State Action. — There seems 
in the nature of things no more reason why the State should 
do one thing rather than another except that it is more use- 
ful. If both are equally essential to the ])ublic welfare there 
is no more reason why the State should punish crime than 
why it should construct and operate a steam railway. There 
is great confusion of thought on this subject, and the duties 
of the State will be referred to again ; but it may be asked. 
Whence the source of the authority of the State to do any 
thing at all ? There is an ancient theory according to which 

• Soe Schonberg's Ilandbuch der Politischcn Oelc<momie, 1st edition, vol. i, 
p. 435. t ^^*'^- 



88 AN- INTROD UCTION TO POLITICAL ECONOMY. 

it is assumed that all citizens have entered into contract rela- 
tions with one another and have established government. 
It can be scarcely necessary to discuss this fiction at present, 
so generally has it been discarded by thinkers. No one has 
seen this contract, and all the elements of a contract are 
wanting. Any thing so vague and indefinite as the assumed 
contract could not stand as a contract in a court of law for 
one instant. Sometimes the writing which the Pilgrim 
fathers signed on the Mayflotoer in 1620 establishing civil 
government is addut-ed as an illustration of a contract origin 
of government. But the Pilgrim fathers then originated no 
new government. They were already living under a govern- 
ment, that of England, to which for over a century their 
successors professed loyal adherence. They did not claim 
to establish a new sovereignty. Even had they done so, is 
a contract once signed to bind men forever ? Are the living 
to be slaves of the dead ? Great political thinkers, like John 
Stuart Mill of England and Bluntschli of Heidelberg, say 
that the validity of contracts of a governmental nature, as, 
for example, treaties, should be limited to one generation, 
say thirty-five years. But if a contract is signed, whence 
comes the authority of the signers to sign a contract binding 
themselves and others to maintain and obey government? 
The creature becomes superior to the creator, and may call 
on the creator to lay down his life, or may take it against 
his will. But this absurdity will not be considered further. 
Granted that contract is the origin of government, how can 
it be shown that government has any right to do one thing 
more than another except on grounds of expediency? What 
other indications of the nature of the contract have we 
than the laws, constitutions as fundamental laws included ? 
Would not then the functions of government change with 
changes in the laws and constitutions ? 

If utility be regarded as the justification of government 
of course the whole cause of controversy falls away. It is 
simply necessary to show that a thing is useful to justify it. 
If God is the source of authority and the justification of gov- 



FJ-:A TL-IiES OF TUK ECOXOMY OF THE .UOUEJLV KA TION. 80 

eminent, its xiUiinate gioimd, then let some one show any 
other limitations tlian exi)ocliency whicli He has established 
to the t"iinetii)iis of goviTimieiit. 

Government and Democracy. — The moilern concep- 
jC tion of ilu^ State is that it is a co-operative community, car- 
ryinii: with it the power of coercion, and thus differs from 
Voluntary eo-operative associations. The State is a coercive 
co-operative commonwealth. The people act through the 
State and its various subdivisions and minor civil divisions. 
" We, the people," establish through our federal government 
a post-otfice. " We, the people," do other things through our 
government of New York State, or Maryland, as the ease may 
be. " We, the people," do still other things through our 
agents, the municii)al authorities of New York, Boston, or 
Baltimore. An older conception, inherited from European 
despotisms, pronounces State action " paternalism," but those 
"who call such a thing as the establishment of gas-works by a 
municipality "paternalism" have never grasped the funda- 
mental idea of modern democracy, which is that government 
is not something apart from us and outside of us, but we 
ourselves. Government activity is not dreaded as, under 
the influence of ideas disseminated by French revolutionary 
leaders, it was early in this century. Governmental action 
ia one of the most powerful factors promoting civilization, 
and in a country like Germany we observe a high civiliza- 
tion, every part of which is largely the result of govern- 
mental activity. 

r Individual Enterprise also Necessary. — On the other 
hand, it is felt that the domination of any one principle in in- 
dustrial life must be disastrous. Accordingly, outside the 
Held of governmental activity, we desire a field for the indus- 
trial activity of individuals and of voluntary combinations of 
individuals in partnerships, co-operative associations, joint- 
stock corporations, and some will say — while others will dis- 
pute it — for combinations of corporations, as in the newest 
development of industrial organization, the trust. 

Some of the Functions of Government. — The pur- 



60 AN INTROD UGTION TO POLITICAL ECONOMY. 

pose of the State then is, in its broadest terms, to promote the 
welfare of the people, and, more in detail, to establish and 
regulate economic institutions, such as property and inheri- 
tance, to separate public from private property, to protect 
persons and property, to establish the conditions of contract; 
and to enforce contracts under these conditions; to promote 
education, morals, science, art, to guard the public health, to 
administer charities, to raise the level of compedtion by pro- 
hibiting those forms of it which are disastrous, to manage — 
itself, or through some subdivision like the municipality — 
natural monopolies, such as gas, electric light, water supply, 
street-car lines, steam railways, etc., and to guard certain 
permanent interests of the nation, such as the maintenance 
of a sufficient area of forests, suitably selected. These 
things private individuals cannot do, or cannot do so well, 
and it may be maintained without fear of successful contra- 
diction that, in recognition of this, civilized nations are, to an 
ever-increasing degree, performing these functions. 

Forestry. — It is not desirable in this place to dwell upon 
these several functions. Treatises on political science ex- 
plain the reason why many of them should be performed. 
The expediency of other functions has already been explained, 
and more will be said about them in later chapters of this 
work. A few words, however, may be said about forestry 
in this place. All governments are taking upon themselves 
the ownership and management of forests. New York State 
has acquired forests in the Adirondacks, and has entered 
upon forestry, having in her employ foresters. Bills have 
been brought before Congress which look to management of 
forests as a permanent function of our national government. 
Switzerland, France and Germany are increasing the area of 
governmental forests. The reasons are very obvious. First- 
of all, it may be said that rational forestry requires plans to 
be made for one hundred and twenty years in advance. 
Trees must be planted to be felled at the expiration of that 
long period, for it takes that length of time for them to grow 
to their full size, and when they are allowed to grow to full 



FEA TUBES OF THE ECONOM Y OF THE MODERN if A TION. 9 1 

Bv/.o tlio amdiuit of tiin])('r nocded c.iii be grown on the small- 
est amount of land. Private individuals will not, however, 
invest niom-y from whieh they expect to receive no return for 
over a century. Second, forests ought to he cultivated on 
a vast scale, on land especially adajjted for forests — land often 
good for nothing else — and certain great regions, like steep 
mountain sides and sources of streams, ought to be entirely 
covered with forests. Their climatic influences are generally 
believed to be important, and forests with their leaves and 
undergrowth certainly prevent rainfall from rapidly rushing 
down mountain sides and deluging the country below. For- 
ests prevent a waste of soil. It is said that where forests have 
been rashly removed from mountain sides in Baden, Ger- 
many, and in Switzerland, it will take three hundred years to 
repair the damage. Soil must be slowly formed again. Pri- 
vate individuals will not select for forestry vast tracts of land 
jiroperly situated. In America farmers have quite generally 
kept a few isolated acres in woodland, but this is not what is 
wanted. Very likely the land kept in trees is better adapted 
for something else, and forests may not be needed at this 
particular point. Third, it requires highly trained scientific 
men to take care of a forest. It is necessary to go through 
high schools, to follow a course for several years in a forestry 
academy, and then to supplement this by an a])prenticeship 
of several years in practical work in forests. Only a State 
owning tens of thousands or hundreds of thousands of acres 
can train up and organize a properly qualified body of scien- 
tific foresters. The difference between a forest which grows 
up wild and one which grows up under a proper system of 
culture is so great that the trained eye can detect the difft-r- 
ence nearly as far as sight can reach, and it is probably safe 
to say that it takes twice as much land to supply a given 
nectl when forests grow up of themselves as where a rational 
system of forest culture obtains. Fourth, when forests are 
cultivated in large tracts, as they should be, covering per- 
haps an entire mountain, very considerable quantities of game 
can be grown, and this forms an imj[»ortant eh-ment in the 



92 ■ AN INTRODUCTION TO POLITICAL ECONOMY. 

food of a people. Our old private system of forests in Amer- 
ica results in almost a total loss of game in the settled parts 
of the country. Fifth, although forests do not pay private 
individuals, tlie pi'olits of Belgian forests, for example, not 
exceeding, it is said, one percent, on their selling value, they 
do pay the people as a whole, on account of their general 
beneficial effects. 

More might be said on tfiis topic were not space too lim- 
ited. It is manifest from this that petty measures which 
some of our States are introducing, like tax exemption for 
planting a few trees or covering even a few acres with trees, 
will never accomplish any thing of economic significance. 
Even "arbor days" are of no account save for their educa- 
tional value. On that account, and on that account alone — as 
well as perhaps for the sake of another holiday — they should 
be encouraged. 

Public and Private Responsibilities.— It is seen in 
general that there is no limit to the right of the State, the 
sovereign power, save its ability to do good. Duty, func- 
tion, is co-extensive with power. The State is a moral person. 
It may be further said in general that the fundamental prin- 
ciple, the basis of the economic life of modern nations, is in- 
dividual responsibility. It is designed that each grown per- 
son should feel that the welfare of himself and of his family, 
if he has one, rests upon himself. The State enters w^here his 
powers are insufficient, or we may express it better in this 
way: for the attainment of certain ends he finds it advanta- 
geous to co-operate with his fellows through town, city, State, 
federal government, and the performance of public duties as 
well as private duties is helpful in the development of the in- 
dividual and of the race. The performance of the true func- 
tions of government tends to promote energy and self-reli- 
ance. 

It will be noted that by far the greater part of economic 
life, namely, in the main agriculture, commerce, and manu- 
factures, is left to individuals and voluntary associations of 
individuals. However, wherever mistakes have been made, 



FEA TUBES OF THE ECONOMY OF THE MODERN NA TION. 93 

ami private parties have been allowed to encroach upon tlie 
functions of the State, these mistakes cannot be corrected 
in a day. It requires long, laborious, and patient work to 
remedy evils of this character. On the other hand, it is al- 
ways easy for the State to give up any industry if it is desir- 
able, and to turn it over to private parties. 



Read H. C. Adams's Reldtion of the State to Industrial 
Action. This is undoubtedly one of the best treatises ever 
written in the English language on the functions of the State. 
A work by the late gifted English economist, W. Stanley 
Jevons, The State and Labor, may also be consulted with 
profit on the subject with which it deals. 



CHAPTER X. 

POLITICAL ECONOMY DEFINED. 

Deri-vation of the Term. — We have now surveyed the 
characteristics and growth of economic society, and are in a 
position to inquire more carefully into the nature of the sci- 
ence which deals with this society; namely, political economy. 
The term political economy is derived from three Greek 
words. Economy is derived from ohog and vonog; olKog in 
this case meaning household goods, and vofiog law, custom, 
or usage, government or regulation. Political comes through 
the corresponding Greek adjective from TrgAif , and this means 
state as well as city; for iu Greece cities were of such pre- 
ponderating importance and influence in the States that the 
same word was used for both, just as on account of the rela- 
tively greater significance of the rural districts we have come 
to use land and country to denote the entire State. Econo- 
my, then, means, etymologically, the regulation of the house- 
hold, or housekeeping, and it can be used to designate the 
science or art of housekeeping, although a separate M'^ord 
like economics would really be better. Political economy 
is, then, the housekeeping of the State, or the management 
of the goods in or pertaining to the State, or of the goods of 
the citizens so far "as they have any public significance, which 
happens whenever private economies enter into reciprocal 
relations. Political economy, then, means the economic life 
of the nation, and afterwards the science of national house- 
keeping, although here again, it' obstinate usage did not stand 
in the way, another expression like political economics would 
really be preferable. National housekeeping is apt to sound 
strange to English ears, but it is sanctioned by as high an 
authority as Mr. James Russell Lowell, and it seems desirable 



rOLITlCAL ECOXOMY DKFIXKIK 05 

that it should become f:uniliar. It is an expression full of 
meaning, and if riglitly nnderstood an excellent definition 
of political economy. It corresponds to the German word 

CVolksici rthifcJuiftsLl ux: Volkj nation, ttoXl^ — wirthschaft, 
ousakceping, o\ko(; — and l eJire , science, vd[ioq. 

Political Economy Defined. — We may define politicm 
economy in its most yeiieral terms as the science iohich trea >■ 
of man as a member of economic society. It deals, then, witli 
social relations, like other branches of sociology; but these 
social relations which form the subject-matter of political 
economy are of an economic or industrial nature, Nearly 
all social phenomena have their economic aspects, so that it 
may at first aj)pear that there is no limitation to political 
economy whatever save the bounds of sociology. Such its 
not the case, however, for the limitation of political economy 
is found in its peculiar stand-point. This may b'^ Drought 
out by some such definition as this : political economy is the 
science ichich deals with sodal ph^jn^mena from the econQmic 
sta nd-po int\ Social phenomena connected with the produc- 
tion and consumption of material good things are the prov- 
ince of political economy. The political economist deals 
with religious phenomena, with the social phenomena of art 
and literature, with urban sanitation, and any number of sim- 
ilar subjects, but always as in some way or another connected 
with the production and consumption of material good things. 
'J'lie physician and economist will both discuss child labor 
and excessive hours of toil in over-heated factories ; but the 
specialty of each will be apparent in their utterances. Differ- 
ent classes of men who concern themselves with society do not 
treat of separate classes of social phenomena, but treating of 
the same phenomena from various points of view the labors 
of each should be supplemental to those of all the others. 

A more detailed definition of ))olitical economy is on some 
accounts desirable, and one is presented lierewith which is 
taken from a German author, Professor von Scheel, and 
slightly modified. It may be properly ])rcfaced by remind- 
ing the reader that the word economy is technically used to 
5 



96 AN INTRODUCTION TO POLITICAL ECONOMY. 

express the entirety of those actions of a person which relate 
to the acquisition and employment of material goods for the 
satisfaction of human wants. We may then say that polit- 
ical ECONOMY DESCRIBES THE RELATIONS OF PRIVATE ECON- 
OMIES TO ONE ANOTHER AND THEIR UNION INTO LARGER 
ECONOMIC COMMUNITIES (aS TOWNSHIP, CITY, STATB), TAKING 
:[NTO ACCOUNT THEIR ORIGIN, THEIR GROWTH, AND THEIR CON- 
■STITUTION, AND PRESCRIBING RULES FOR THAT ORDERING OP 
THESE RELATIONS BEST CALCULATED TO MEET THE DEMANDS 
OF THE DEGREE OF CULTURE ALREADY ATTAINED AND TO BE 
ATTAINED IN THE FUTURE, 

Distinction Between Private and Political Econ- 
omy. — This definition marks off the sphere of domestic 
economy from that of political economy. Political economy 
considers social matters. It does not attempt to give direc- 
tions for the acquisition of wealth by a single individual, but 
to inquire into the nature of those phenomena which appear 
when individuals in their efforts to gain a livelihood and in 
their employment of material goods enter into relations with 
one another. It seeks to explain these phenomena both by 
mere description and by the discovery of causal relations 
connecting them together ; and it aims to show how the 
true welfare of a nation may be promoted in the acquisition 
and employment of material good things. Technological 
treatises on agriculture, mining, manufactures, electricity, 
show how an individual may enrich himself. This distinction 
ofiust not be misunderstood. Technical sciences and political 
economy both treat of society, and both treat of individuals, 
out the technical sciences subordinate the social stand-point 
while political economy subordinates the individual stand- 
Doint. Political economy, in seeking the welfare of society, 
)f course must aim to promote the welfare of the great mass 
)f individuals and families in the nation and in the world, 
out that is something different from the welfare of a particu- 
ar individual or even of the great mass of men at a given 
noment. Political economy looks at questions from the 
point of view of the general and permanent welfare. 



POLITICAL ECONOMY DKFIXED. 07 

Political Economy Simpler than Private Econ- 
omies. — It may 1)l' well in this place to make clearer some 
of tliese points by various illustrations. It might seem a far 
easier thing to toll how John Smith could secure his eco- 
nomic welfare than liow the nation of which he is only one 
member may become i)r()sperous, but such is not the case. 
Accidental and disturbing causes and individual [jcculiarities 
make it extremely diHicult to formulate general principles 
for an individual private economy, but these irregular ele- 
ments disappear when we observe a large mass of indivi<lual 
economies. Mortality serves as a good illusirali(jn. No one 
can say when John Smith will die. The chance element is 
so pronounced as to make prediction impossible. But when 
we are called upon to make calculations upon mortality 
among several millions of people at a given period in a given 
country it becomes a comparatively easy matter. Individual 
irregularities become social regularities, and calculations for 
great masses of facts of this kind can be n^ade with so much 
accuracy that vast business transactions like those conneited 
with insurance can with safety be based upon them. In a 
nation we can count upon a regularly recurring amount of 
inundations, drought, grasshopper plagues, and similar catas- 
troplies, accidents to the persons of inhabitants involving a 
diminution of labor power, of disease and death, even of 
theft, robbery, and other forms of wickedness, vice, and 
pauperism. We make allowances for all these wealth- 
annihilating factors, and consequently they do not disturb 
our generalizations. Given a country like the United States, 
a fruitful soil and all other desirable physical properties, 
a population on the whole thrifty, industrious, temperate, 
moral, intelligent, and enterprising, a tolerable government 
whose laws are in the main obeyed, and we know to a cer- 
tainty that the country, as a whole, must in time become 
very wealthy, and in its economic life things as they occur 
at the same time, that is to say, phenomena in their co-exist- 
ence, are observed to fall into great classes which may be 
described and explained, and things as they occur one after 



98 AN INTRODUCTION TO POLITICAL ECONOMY. 

the other, or phenomena in their succession, are likewise ob- 
served to do so in some kind of regular order, which also 
may be described and explained. 

Let us suppose that we seek to know how John Smith 
may acquire wealth. He follows general principles, but 
disease and death at an early stage of his career destroy all 
his property. It is not necessary to suppose so extreme a 
case. The land of the country is on the whole fertile, but in 
some way or another, possibly by inheritance, John Smith 
may be the owner of a piece of poor land on which he is 
obliged to struggle for a bare subsistence. His farm may be 
fertile, but an overflow of a river, such as has not been 
known for a century, sweeps away his cattle, buildings, and 
the year's produce, and cripples him industirally in so serious 
a manner that he never recovers from it. Instances like the 
following have fallen under the author's observation. John 
Smith is a clever artisan, receives good wages, accumulates a 
small property, which he is induced by an unscrupulous man 
to exchange for worthless Western lands. He returns to his 
work for his old employers to begin life over again penniless. 
Others may learn from his experience to be more suspicious 
of plausible men with Western lands, but John Smith has 
lost his accumulations. These illustrations can be continued 
indefinitely by the reader, and observation of what is going 
on about him every day will furnish him with numberless 
concrete examples. They all make clear the statement that 
it is far easier to say how a nation may become prosperous 
than how a particular concrete individual may secure eco- 
nomic well-being. 

Private not Identical with Public Welfare. — It is 
said that political economy seeks the welfare of society. The 
prosperity of individuals may be secured at the expense of 
society, for it by no means follows, as superficial writers 
have assumed, that he who gains wealth has added that 
amount of wealth which he secures to the total wealth of 
the country or of the world. Lotteries serve as one of the 
best illustrations. They are one of the most disastrous 



POLITICAL ECONOMY DEFINED. 99 

institutions, both as regards (lie economic welfare and the 
morals of a connnunity. Jiiirge numbers in the industrial 
community, especially, perhaps, among the poorer classes, as 
servant-gills in Germany, may be turned away from safe and 
remunerative investment of their small earnings, in the ag- 
gregate large, to a feverish pursuit of chance-gain. Society 
as a whole loses, but proprietors of lotteries have been 
known to gain large fortunes. 

When American cities have given away or been robbed of 
valuable franchises for street-car lines individuals have 
gained, but the people as a whole have lost. Baltimore 
street-car companies pay nine dollars out of every hundred 
they collect for the maintenance of public parks, in addition 
to State and city taxes. Unscrupulous politicians, for rea- 
sons best known to themselves, but not difficult to divine, 
have desired to relieve street-car companies of this very 
proper although inadequate payment for valuable privileges 
enjoyed. This would add to the wealth of individuals, but 
would injure the people of Baltimore as a whole. 

Other countries, like France and Austria, have limited all 
charters for railways to periods of less than one hundred 
years. These have been accepted under conditions that, with- 
out compensation, the entire property should, at the expira- 
tion of the period, revert to the people in their organic 
capacity; that is to say, to the State. Our general principle 
of unlimited charters has enriched enormously a tew indi- 
viduals, but the country as a whole is correspondingly poorer. 
One other illustration must suffice. The city of Chicago owns 
and operates an electric lighting plant, and the cost of each 
arc light of two thousand candle-power burning all night is 
said to be about fifteen cents a night, interest on the invest- 
ment included. If Chicago paid fifty cents a night per arc 
light to a private corporation, as does the city of Baltimore, 
a i\iw individuals would grow wealthy, but it would be at the 
expense of the city. It is the business of the political econ- 
omist to describe the best means l\>\- the promotion of the 
welfare of the people as a whole. In a certain sense, the 



/ 



100 AN INTRODUCTION TO POLITICAL ECONOMY. 

political economist is to the general public what the attorney 
is to the private individual. 

Political Economy Regards Permanent Interests. 
— It has been said that the political economist must have 
regard to permanent interests. He may call uj^on the pres- 
ent generation to make a sacrifice for future generations, as 
did the city of Heidelberg some time since, when it passed 
over to the system of " high forest-culture ;" that is to say, 
when it decided to allow a large part of the extensive forests 
it owns to stand until the trees had attained their full size, 
and that means, in some cases, one hundred and twenty 
years. As has been already stated, that is best for the per- 
manent interests of the city and nation, but it put aside all 
prospect of financial return for several generations. 

Political Economy both a Dynamic and a Static 
Science. — The definition of political economy which has 
been adopted calls attention to the actual condition of indus- 
trial society in the past and to its desirable constitution or 
structure in the future. Political economy embraces both 
the statics and dynamics of society. The one treats of the 
interrelations of existing economic phenomena, including 
their causal forces, and the other embraces a discussion of 
the progressive movements of economic society. The one 
considers this society as it is, the other inquires how it has 
become what it is and what is the course of its evolution at 
present. Statics treats of forces at rest or in a state of 
equilibrium ; dynamics deals with changes and the law of 
changes, and what John Stuart Mill calls their ultimate 
tendencies. 

It may be remarked in this place that one of the chief errors 
of the uninstructed, in the past as well as at the present, con- 
sists in the failure to regard political economy as a dynamic 
science at all ; and this has led to a false and dangerous 
view of society. It induces men to try to stop the growth 
of society, which is about as safe as to seal tightly the 
cover of a boiler of boiling water, and to try to prevent 
thereby the expansion of steam. Change we must havej 



POLITICAL ECOXOMY DEFINED. 101 

the only quostion is, What will bo the nature of the change? 
Growth can be guided and directed by intelligence, or by 
what Professor Lester F. Ward, in his Dtjnamic Sociology^ 
calls (olfologii-al action. 

Importance of our Social Ideals in the Study of 
Political Economy. — Tiiis naturally leads to a further re- 
mark about the nature of economic opinions. At tlie outset 
of any earnest study of political economy we should make up 
our minds as to what we really desire for society. And in this 
respect let us be honest with ourselves. Do we regard all 
human beings as brothers, and have we a sincere longing for 
the welfare of all ? Do we think that the earth and all the 
riches of art, science, literature, and industry are for all, to 
be enjoyed by all so far as practicable in proportion to their 
real needs ? Do we, in short, take the ethical view of polit- 
ical economy ? Or do we, on the contrary, ])erhaps without 
a full consciousness of the fact, hold that some are born to 
subserve the gain of others ? Do we think that only some 
of us, and not all of us, have talents which we ought to im- 
prove; that is, to develop in the most complete manner pos- 
sible all faculties, physical, mental, moral, spiritual '? Are 
we indeed striving to protect ourselves, our friends, or our 
class in special privileges ? As political economy has to do 
with what we desire, that is, as it is teleological, the one 
aim or the other will be felt in all economic discussions, 
in particular in so far as they relate to practical measures. 
This is why political economists in all countries are necessa- 
rily divided into two more or less antagonistic grouj)s, dif- 
fering chiefly in practical aims, and as that part of politic^al 
economy is more concerned with such aims, in the dynamics 
of political economy. 

Ethical Aims an Essential Part of Economic 
Activity. — Political economy, then, distinctly includes 
wiliiin its province an aim. It does not tell us merely how 
things are, but also how they ought to be. Economists deal 
"svitli human activities, and these must liave a purpose. A 
purpose is not something accidental, but a true essential part 



tOM AN INTRODUCTION TO POLITICAL ECONOMY. 

Of the activitf. Then we may compare various purposes at 
fciie present time and pronounce some praiseworthy and 
©tilers re?'i"ehensible. We can speak of actual purposes and 
of desirsvble purposes. The development of economic life 
briiigs one clearly the significance of ethical aims in industrial 
society. What exists now as a mere matter of course was 
once a iuture ideal, or, to use more technical language, the 
"' Is '' includes what was once the " Ought-to-be." The acv 
c^Uisition of material goods by robbery has for ages been 
Aieid l>o be legitimate, and the abolition of plunder as a 
so'ii-fce of individual gain could once among savages have 
oeeji only an ideal. The acquisition of material goods by 
force of arms has during the greater part of the world's his- 
toid been held more honorable than honest toil, and in the 
general peaceful pursuit of economic well-being we have in 
oh'ilized nations only recently reached an ethical goal longed 
for by the best for many generations. Slaveiy has until 
within thirty years heen a part of the industrial life of the 
United States, and only in the present generation have we 
realized in its abolition an ethical goal in our economic 
life. Further illustrations will on reflection occur to the 
reader. Ethical purposes for the future exist now as they 
have always existed, and they will mold our economic life. 

An American economist. Professor F. H. Giddings, arrives 
at the same conclusion from a somewhat different starting- 
point.* Political economists deal with the actual, he says 
in substance, but the actual contains the social ideal, because 
in striving for the realization of a social ideal we strive to 
make that general which already exists as something excep- 
tional. Living men go before us as luminaries to show us 
the way. They are our ideal. 

The " Is " embraces the future " Ought." This in itself 
answers the question whether political economists should 
deal merely with what is, or also with what ought to be. 
The two cannot be separated. Also, merely to know what 
is in all its bearings itself often shows what ought to be, as 
* See liis Sociology and Political Economy. 



POLITIC A L ECOXOM \ ' DK FINED. 1 03 

in llio case of the evils of rliild lalxn-, and itsell' suggests a 
remedy lor evils. AiiDtiier I'eason lOr lliis coDchisioii is 
this: we want lo know what ought to be and liow it can 
be, and who can tell us so well as he who has studied what 
exists and the processes by which it came to exist? There 
is no separate science of the economic " ought," and it cer- 
tainly does not at present seem desirable to separate it out 
as something distinct from political economy. 
V" "Is Political Economy a Science?'' — Political 
economy has been spoken of as a science, and thus far no at- 
tention has been paid to the question so frequently asked, 
" Is political economy a science ? " No propriety in the 
question is perceived. Science means systematized knowl- 
edo;e with, regard to a body of related phenomena. It is or- 
dered knowledge witli definite bounds, taken out of the 
great sea of knowledge because it pertains to groups of 
facts conceived as forming a whole, as therefore more closely 
connected with one another than with other groups of facts. 
Science is a branch of learning. It has been said that a body 
of knowledge is a science only when it carries with it the 
power of prediction ; but there can scarcely be such a thing 
as any branch of learning worthy of a name and of the at- 
tention of men m hich does not carry with it more or less 
power of prediction, how much cannot be known until it 
is complete and finished. Sciences may differ in this re- 
spect as in others ; some may be very imperfect, others 
more advanced, and still others in a condition yet nearer /> 
])erfection. '^ 

A use of tlie word science is frequent, in England and 
America, which implies a reproach to both nations. It is 
used as equivalent to natural science. Wo may thus hear a 
school-girl say, " I am studying science," when she means 
some branch of natural science. It may uat show that we 
have given too mucli attention to physical sciences, but it 
does clearly prove that we have umluly neglected mental 
and social sciences of all kinds. It is in the minds of some 
connected with that materialistic view of the world which 
5* 



104 AN INTRODUCTION TO POLITICAL ECONOMY. 

refuses to admit ttie possibility of positive knowledge about 
things which cannot be seen, handled, and weighed. Why- 
political economy is less worthy to be called a science than 
biology, for example, is hard to be understood, unless it is 
simply that it is less advanced toward completion. 



Those who read German will find an admirable article 
bearing on topics discussed in this chapter by Professor 
Gustav Schmoller in the fifth volume of his Jahrhach fi'ir 
Gesetzgebung, Verioaltunfj, und Volkswirthschaft. It is enti- 
tled, "Die Gerechtigkeit in der Volkswirthschaft." Professor 
Gustav Cohn has also suggestive remarks which have been 
helpful to the author in the " Einleitung " to his System der 
National Oekonomle, Kapitel I, " Gesetze der National Oe- 
konomie," s. 69-78. 



CHAPTER XL 

OTIIELI DKFINinONS OF POLTTrCAL ECOXOMY. 

Three Classes of Definitions. — Conceptions of political 
economy may bu divideil into three classes, and definitions 
may be formed to fit each class of conceptions. Writers 
frequently fail to describe accurately their conceptions of 
the nature of political economy in their definitions, but they 
may be divided into classes according to their fundamental 
ideas respecting the scope and purpose of political economy, 
wliether they have accurately expressed these in their defini- 
tions or m)t. 

Writers of the fi rst cla ss. j'egard political economy as a 
science which has to do with external valuable things or 
e cono mic goods — that is, i^tttrwoitTth," as that word is usedr* 

^^ ' economists/, writers of the segond class, as the science 
which has to do with (eeo'nomic goods in their relations to^ 

^Q janl; writers of the t hird class, as the science which has to dc 
^th man in his relations to economic goods'i The logica 
evolution is observed. Ecniinmir goods are first made tlie 
prinuy:y_iJiiag, and they arc trcatiMl altnost as if their pro- 
duction was an indepeu-dent process apart from the will of 
man, one extreme writer going so far as to say that the lav/s 
governing the production of weallh would be just what they 
are if 'man did not exist. The social relations involved 
in tlie production and consumption of economic goods are 
then considered more carefully, and finally the original process 
is reversed, and it is distinctly asserted that "the starting- 
point as well as the object-point of our science is man."* 

The definition of political economy found in Mrs. Faw- 
cett's little Political hlcoiiowy may be taken as a fair pres- 
* Rosclicr's Political Economy, vol. i of Lalur's translation, p. C2. 



106 AN INTRODUCTION TO POLITICAL ECONOMY. 

entation of the first class of conceptions. It is as follows: 
r' Political economy is the science which investigates the 
'nature of wealth and the laws which govern its production, 
\gxchange, and distribution." 

The definition of political economy found in John Stuart 
Mill's treatise may be taken as a tolerably accurate presen- 
tation of the second class of conceptions. " Writers on po- 
litical economy," says Mill, " profess to teach or investigate 
the nature of wealth and the laws of its production and dis- 
tribution, including directly or remotely the operation of all 
the causes by which the condition of mankind or of any so- 
ciety of human beings in respect to this universal object of 
human desire is made jjrosperous or the reverse." Social 
relations are dragged in through a back door, as it were. It 
is perceived that political economy must concern itself with 
them, but they are not at once placed in the foreground as 
the main thing with which we are to deal. Mill's position \9,\ 
perhaps brought out still more clearly in the full title of his | 
work, which is, Principles of Political Economy, icith Some\ 
of their Applications to Social Philosophy. Social philoso- 
phy is evidently viewed as something outside of political 
economy rather than as a larger whole of which political 
economy is only a part. 

Professor Henry C. Adams, of the University of Michigan, 
in the second edition of his Outlines of Lectures upon Polit- 
ical Economy, offers a statement about iDolitical economy 
which may be placed among definitions of political economy as 
it is understood by those who hold the third class of con- 
ceptions, although he himself does not call his statement a 
definition. It is as follows: "Political economy treats of 
industrial society. Its purpose as an analytic science is to 
explain the industrial actions of men. Its purpose as a con- 
structive science is to discover a scientific and a rational 
basis for the formation and government of industrial so- 
ciety." 

While the wording of not all definitions is such as to place 
them clearly in any one of these three classes of conceotions, 



OTIIICU DFF/y/TWXS OF TOLITIGAL ECOXOMY. 107 

aiul wliik' all polilicul et'onoinists are not true to the concep- 
tion c.\[)ressed in their own ilelinition, econoniisU themselves 
may be arranged, in a rough sort of way, at least, under one 
or tlie other of the classes corresponding to the conceptions, 
and tluis divided into three groups. There may be more or 
less shifting of stand-point and wavering of conception, and 
certain economists may stand near the boundary line of two 
conceptions. 

The Growth of Political Economy. — The order in 
"which the delinilions liuve been given shows the evolution 
of our science. It has grown from the first conception to 
the second, and then from the second to the third, and 
with this growth the character of political economy itself 
lias changed somewhat. The words political economy do 
not mean now precisely what they did once. But this evo- 
lution of economic science has not been strictly a chrono 
logical one. It has been rather a logical one, and the most 
we can say is that in the main the chronological movement 
lias corresponded with the logical development of the science 
Political economists did not adopt definitions of the first 
class, then of the second, and finally of the third. It may 
be stated more correctly in this way : Beginning with this 
century these various conceptions or ideas of political econ- 
omy have been engaged in a contest. At first definitions 
of the first class embodied the prevailing conception, then 
detinitions of the second class, and now definitions of the 
third class. But there has always been some one of 
]n-ominence to challenge the prevailing conception. Thus, 
early in this century, Sismondi, the Swiss economist, defined 
political economy as " the science of human happiness," and 
Malthus, his friend, the distinguislied English economist, 
subordinated wealth as a secondary consideration to the wel- 
fare of man as the primary consideration, oi)posing those who 
treated public questions merely from the stand-point of 
pounds, shillings, and pence. He regarded political economy 
as the science of wealth in its relations to man, emphasizing 
strongly the latter part of the conception. While the pre- 



108 AN INTRODUCTION TO POLITICAL ECONOMY. 

1 vailing conception of political economy at the present time is 
ipresented fairly well in the definitions of Professor Adams, 
iProfessor von Scheel, and the author, it is also contested by 
(those who adhere to definitions of the first class. 

Political Economy and a Natural Beneficent Order. 
-The first conception of political economy may be traced 
iback to French writers of the second half of the eighteenih 
century, called the Physiocrats, usually regarded as the 
[founders of the science because they were the first to try to 
treat national economic life in its entirety in a rounded-out, 
systematic manner. It is closely connected with ideas con- 
cerning a beneficent external order of nature which domi- 
jnated the political philosophy of the time of the French 
Revolution. Nature was regarded as a power outside of 
man, who had drawn up, as it were, a code for the entire 
conduct of the individual and social life of man. Nature 
was looked upon as wholly good, and all the evil in the world 
was traced to man, who, although a product of nature, and 
good in his essence, yet somehow had managed to act con- 
trary to his being and to otherwise universal law, and had pro- 
duced all sorts of evil institutions. There was then a constant 
ciy, most loudly uttered by Jean_ Jacques Rousseau, "Back 
to Nature." Government was held responsible for most of 
the sutterings of humanity because it was an artificial prod- 
uct of man's contriving, and hence some wished to abolish 
government altogether, while others advocated the reduction 
of its functions to a minimum, and gave as the watchword, 
"iMissez'farre,'''' that is, let alone, do not interfere with this 
beneficent order of nature. Now space is too limited to 
permit the author in this place to trace this theory of nat- 
ural law back through mediaeval writers to Roman juris- 
prudence and thence to Greek philosophy, nor can it here be 
shown how full of contradictions and absurdities it was, but 
it will readily be understood how it led to the first concep- 
tion of political economy. Nature had established laws ex- 
ternal to man for the production, distribution, nnd consump- 
tion of economic goods, and it only remained for man to 



OTUER DEFIXITIOXS OF POLITICAL ECONOMY. 100 

discover these, and to conform to thoni in all his actions, 
(iradiially, liowever, it became more ami more apparent to 
thinkers that the conception ot" economic goods, or wealtli, 
to employ the more usiial term, Avas itself a sid^jective term ; 
that wealth, properly speaking, could not exist apart from 
the needs and desires of man, although material things 
might, and that the will of man was a main factor in all 
economic life. It was seen, moreover, that progress consisted 
not in blind subjection to external natural laws, but in a con- 
quest and subjugation of wild nature. The conception off 
political economy has accordingly been moditied until finally 
man is mude the beginning and end of all inquiries, and 
nature is regarded as his servant. 

The Mercantilists. — Curiously enough, the most mod- 
ern conception of political economy is a return to an older 
and sounder one, current before the domination of the polit- 
ical and social ideas of the French Revolution. The econo- 
mists callfd the Mercantilists, the forerunners of the Physi- 
ocrats, made their inquiries center about legislation and 
human activity, and to them political economy was the art 
of the statesman in its economic aspects. The speculations 
of the Mercantilists culminated in the Political Eco)iomy of 
Sir James .Steuart, ])ublished in 1767, nine years before 
Adam SmitlTs WtuUh of jWiti(ms, and in that we find this 
definition of political economj^, in which the old spelling, 
pointing to the origin of the word, is still retained : "(T^con-j 
omy in general is the art of providing for all the wants of\ 
a family with prudence and frugality. . . . What CBConomy\ 
is in a family, political (Economy is in a State. . . . The great J 
art, therefore, of political ceconomy is first to adapt the differ- 
ent operations of it to the spirit, mauTiers, habits, and customs 
of the people, and afterward to model these circumstances so 
as to be aide to introduce a set of new and more useful insti- 
tutions. The principal object of this science is to secure a 
certain fund of subsistence for all the inhabitants, to obviate 
every circumstance which may render it precarious, to provide 
every thing nece«sary for sujiplying the wants of the society, 



no AN INTROD UCTION TO POLITICAL ECONOMY. 

and to employ the inliabitants (supposing them to be free- 
men) in such a manner as naturally to create reciprocal rela- 
tions and dependencies between them, so as to make their sev- 
eral interests lead them to supply one another with their 
reciprocal wants." 

/ The fine historical sense disclosed in Steuart's definition, 
contrasting with the abstract speculations of the French, 
jshould be noticed. Institutions must first be made to con- 
form to the genius of a nation, and then spirit, habits, and 
customs of the nation must be so modified that new and 
better institutions can be introduced. It is not possible to 
disregard the past, and to legislate as if that did not exist. 

Different Conceptions of Man and External Nat- 
ure. — Political economy occupies a middle ground between 
natural sciences and mental sciences. It deals with man, 
but with him in relation to external nature, furnishing him 
with material for goods to supply his wants. It must pre- 
suppose the existence of natural physical laws, not at all the 
product of human volition. Some writers have been inclined 
to ovei'look the part of external nature in economic life, and 
consequently to go to an extreme in their conceptions of 
political economy. Starting with definitions which overlook 
man we finally come to definitions which overlook the phys- 
ical universe outside of man. Professor de Laveleye, in his 
Political Kconomy, gives a definition which may serve as an, 
illustration : 'f Political economy is the science which deter-/ 
mines what laws men ought to adopt in order that they may, 
with the least possible exertion, procure the greatest abuu-l 
dance of things useful for the satisfaction of their wants,^ 
may distribute them justly and consume them rationally," ■ 

Professor de Laveleye himself is not true to his defini- 
tion, for he discusses many things which do not by any 
means exclusively pertain to legislation. 



CHAPTER XIT. 

MAIX PARTS OK POLITICAL ECOXOMY. 

Political economy lias become so large a science that it 
lias been foiuul desirable to divide it into parts, each uf 
which is often treated in separate works or volumes of the 
same work. Sometimes each one of the great parts is treated 
almost like a separate science. Sociology has been spoken 
of as a group of sciences. With the evolution of political 
economy it also is beginning to assume the appearance of 
a group of sciences, although this evolution cannot go so far 
on account of the much smaller range of political economy. 
The connection between the main parts of political economy 
has so far been well preserved, and their unity in the larger 
whole rarely escapes the consciousness of the student. 

Political economy is most commonly divided into tJiree 
parts. The first is concerned with general principles. This 
should properly include an outline review of the entire sub 
ject, the parts of which may be further elaborated later. The 
s econd part dealsjadth the detgjied practical api)licatioii of 
general principles, as in the discussion of forests, canals, rail 
wavs, banks, and the sphere of the State with reference to 
these economic factors. The third part treats^of finance; 
that is to say, the collection and administration of public 
re venu es, taking up a discussion of the various sources of 
the revenue, as prtxluetive property, taxes, and loans, and 
entering into an examination of public debts with reference 
to their origin, growth, management, and extinction. 

General Political Economy. — These parts of political 
economy are given dilTcrt'iit names. The first part is some- 
times called theoretical jjolitical economy, but this is objec- 
tionable. It is as practical as any part, as practical, in fact. 



112 ^xV INTRODUCTION- TO POLITICAL ECONOMY. 

as the foundation of a house. This first part takes account 
of such practical matters as the functions of government. 
But there are certain main facts in economic lile more gen- 
eral, more nearly universal than others, and these can be ad- 
vantageously treated by themselves before certain topics are 
taken out of their connection for more careful special inves- 
tigation. This fi rst division of political economy we niay \ 
call general political economy^ ov gmeral ecojmmic.8^ Underi 
this head we discuss definitions and general conceptions, 
land, labor, capital, rent, wag;es, profit, money, interest, the | 
organization of industry. This part of political economy is 
nearly all we find in the older text-books. 

Special Political Economy. — The se condjj jj:t of polit- 
ical economy may be called special political economy or 
simply special economics. When the first part is unfortu- 
nately called theoretical political economy this is also unfort- 
unately called practical political economy. This second 
part is called economic admhiistration in the great work 
edited by Schouberg, ^^Das Ilandbuch der Politischen Oekon- 
omie.^^ 

Finance. — The thii-d part is always c.aWed ^^ nanr,e. 

Other divisions of political economy into main parts are 
not unusual wherever the specialization of the sciences is 
-[ carried far. Professor AVilhelm Roscher, of the University 
of Leipzig, published the first volume of a great treatise 
thirty-five years ago, and, working on it ever since with Ger- 
man thoroughness and perseverance, has nearly completed 
the last of his four volumes. The following are the titles of 
the volumes : 1. General jPoUticalJEconomy. 2. Agriculture 
and Other Branches of Industry Concerned toith the Produc- 
tion of Raw Material. This includes, among topics discussed, 
forestry, care of grain, pastures, agricultural laborers, breed- 
ing of animals. 3. Gonvmerce and Manufactures. ^.Finance 
and Gare of the Poor. 
^ Professor Adolph Wagner, of the University of Berlin, 
publisheTl in 1872 the first volume of a revised edition of 
an older work on political economy, by Professor Rau, of 



MA /X PAIiTS OF rOLITICAL ECONOMY. 1 13 

IIt'it.len)(M'<x, wlio w:is in liis day tlic most (lislinu^iiislied ocono- 
niist ot" Gcnnimy; and in 18T7 he piiblislied a new edition of 
the second vohuue of the same work. Wlien a later edition 
of Professor AVagner's revised volumes was called for it be- 
came apparent that Kau's name could no longer be retained, 
because changes in the revision grew so numerous and far- 
reaching in character that it became substantially a new work. 
This work by Professor Wagner is still going forward, and 
as planned it will comprise at least seven volumes, and in all 
probability more. It is the most extensive as well as the 
profounilr>t ccdiiiituic treatise ever written. The work is 
divided into tluee main parts, and each of them is subdi- 
vided into volumes, as follows : 1. The Hrst main part is 
general_or theoretical political economy. This part is divided 
into two volumes, the first called Fundamental Prbiciples, and 
the second General Political Economy, with SpeclaJ, Reference 
to the Si/stem of loricate Economies. 2. The second main part 
bears the title, /Special or Pra ctical Politic al ^con onii/, and is 
likewise divided into two volumes, the first called Means of 
Transportation and Communication, and the second, Public 
Policy, icith respect to Agriculture, Manufactures, and Com- 
merce. 3. Part third is called T'Tm/we^and is divided into 
•three volumes ; namely, first, Introduction and General Con- 
siderations Concerning the Financial Economy of the State; 
second. Fees and General Theory of Taxation ; third, Special 
Tlicory of Taxation and Public Debts. The third volume 
of the part on finance will be devoted largely to practical 
application of general principles. 

Of this immense work three volumes, the first, fifth, and 
sixth, have appeared, and the seventh is at the time of the 
prej)aration of this book being issued in parts. 

The proper division of an economic treatise seems to be, 
as already indicated, into a first part, containing a general 
view of the life of the socio-economic organism in all its 
parts, and then an elaboration of some of these parts, and 
in tills elaboration the needs of tlie public will be a guide. 
Anyone of the leading parts of a general economic treatise 



114 AJSr INTRODUCTION TO POLITICAL ECONOMY. 

could be enlarged into a volume, and this has been done with 
many of them. Tiiis will appear clearer if we examine the 
subdivisions of treatises on general economics. 

Treatises on general economics are quite generally divided 
into four parts or books, called, 1. Production — that is, the 
creation of utilities. 2. Distribution — that is to say, a dis- 
cussion of the ultimate share which each person receives of 
what is produced; or, as we might perhaps say with a tolera- 
ble degree of exactness, the amount of income of the various 
i • . 

(members of industrial society. 3. Exchange — perhaps, still 

better, the Transfers of Goods; sometimes also the Circulation 
of Goods. 4. Consumption of Goods. Part 4, thougli indi- 
cating the purpose for which all economic activity takes 
place, is sometimes omitted. 

If we speak of these divisions of political economy into 
parts as perpendicular, we could call its division into eco- 
nomic dynamics and economic statics a horizontal divisi^iij. 
It cuts across all the others. John Stuart Mill, however, 
who gives too little attention to economic dynamics in gen- 
eral, has one book on this subject in his political economy. 
It is entitled, Injinence of Progress of Society on Production 
qnclDistributio7i. Mill has no book on consumption, but his 
fifth book is on the iDfliience of Government. 

Professor Gustav Cohn has divided his General Political 
Economy, the first volume of an exhaustive treatise, into an 
Introduction, treating of scientific method, of the relation 
of political economy to other sciences, of the history of 
political economy, and of fundamental conceptions, and into 
the System of Economic Life. The System of Economic 
Life treats (1) of the Elements of Economic Life — namely, 
population, nature, labor, capital; (2) the Structure of the 
Economic Life — including the ordering of the common life, 
the forces connecting the members of the social body, such 
as competition, association, private and collective property, 
the diflerences in society, and groups in the social body; 
(3) Processes of EconomiQ Life — namely, production, trans- 
fers of sroods, and distribution of income. 



MA IX PA IxTS OF rOLITICA L ECOXOM V. 115 

It will Ih" readily seen (hat a topic like populatio n can be 
treati'il in an inilopondent woik, and it has been so treat ed 
by_Maltluis, a great Knglisli eeonuinist. Land, and the price 
})aid for its use, called rent, may also be treated in an in- 
dependent work. An American economist, President Francis 
A. Walker, has written a book called Zand and lis lioit. 
CajiUaJ, another factor in production, lias been made the 
title of an important work by ("arl ^NFarx, the German so- 
cialist. The present work folic lus a plan which is new in 
some respects, particulaily in the division of space assigned 
to the various topics discussed. The author aims to give 
his readers an insight into the real signiticance of political 
economy, and a general view of the entire ground, whereby 
it is hoped that many will be led to continue their economic 
studies further. A large part of the book is, of design, de- 
scriptive. 



-p 



CHA'PTER XIII. 

ECONOMIC METHODS. 

Methods whereby knowledge is acquired are properly- 
discussed in logic, but as a familiarity with logic cannot be 
assumed, as there is frequent change in logical treatises, 
and as there is a lack of unanimity of opinion about the 
proper method for mental and social sciences, a short chapter 
must be devoted to a discussion of methods suitable for the 
discovery of economic truth. 

Logicians have usually spoken of all methods for the ac- 
quisition of knowledge as either deductive or inductive, but 
recently a third method, the statistical, has been assigned 
an equal rank, and it has been claimed that the statistical 
method is the one peculiarly adapted to the study of all the 
social sciences. 

The D educ tive Method means reasoning from the gen- 
eral to the particular. The most familiar illustration is this: 
!A.11 men are mortal; John is a man; therefore, John is mortal. 
We begin with a statement respecting a class, we see that 
a particular individual belongs to this class, and then we 
assert that what is true of the class is true of the individual. 
This is self-evident. This kind of reasoning is often called 
in colloquial English " putting two and two together." 
. Inductive Method. — Now, inductive reasoning reverses 
the process. It finds that certain things are true of an in- 
dividual which by observation is declared to be a fair type 
of a class, and then what is true of the individual is said to 
be true of the entire class. It i s seen that- John dies. John 
is mortal. Observation shows that James, Richard, Robert, 
and others likewise die. Observation as reported in history 
tellsjis of no man who has not died. We say then John_js 



ECONOMIC AfKT/IonS. 117 

a tyjMcal mai>, aiulwe concliulo tliat all mon are mortal. 
These two methods maniTestTy "supplement eaeh other. 

Statistical Method. — But when we mass together largo 
numbers ot' facts al)out the lite of man as a member of soci- 
eiv, in other words, social phenomena, we observe certain 
retciilarities among them. No one of tliem can be taken as 
a type, yet we can arrange and group them and gather in- 
formation about them. Suicides serve as an excellent illus- 
tration. What could appear to be less regular than the 
means adopted by human beings to put an end to their own 
lives? Yet when we study a large number of cases, say 
thousands, we find that a certain proportion in each hundred 
will hang themselves, another proportion will poison them- 
selves, another proportion will drown themselves, etc., etc. 
Likewise we discover a regularly recurring proportion be- 
tween men and women. We find that a certain percentage 
will choose a rainy day, another percentage a clear day; a 
certain percentage will be married, another percentage un- 
married. 

Mortality in general serves as an excellent illustration, and 
this has in another connection already been cited. It is not 
easy to tell whether Robert, aged forty, will die during the 
next twelve months, bnt it is easy to tell how many men among 
a hundred thousand aged forty in a particular country will 
die. The observation of these regularities in large masses 
of facts, and the acquisition of knowledge thereby, is called, 
the use of the statistical method. 

Deductive School. — Economists during the first half of 
this century generally made use of what they called the de- 
ductive method. They started with a few general proposi- 
tions afforded them by their own consciousness or by obser- 
vation of familiar facts, or by other sciences, and sought to 
explain the economic life of man thereby. One of these 
general propositions is the assumption that the main mo- 
tive, almost the exclusive motive, and the only one to be 
taken into account in reasonings respecting economic 
life, is self-interest. Manifestly, if we can assume that men 



118 AN INTRODUCTION TO POLITICAL ECONOMY. 

ave always actuated by self-interest it is only necessary to 
find out where self-interest will lead to predict the course 
which they will pursue. Undoubtedly, this throws a flood of 
light on economic ])henoniena and explains many of them. 

A second general proposition found in the writings of the 
older deductive economists is this : population tends to in- 
crease faster than the means of subsistence. 

A third proposition asserts that capital increases the pro- 
ductivity of labor, and that further accumulations of capital 
may be made which will increase indefinitely the amount of 
economic goods annually produced. 

A fourth proposition asserts what is called the "law of 
diminishing returns;" which means that after a certain amount 
of labor and capital have been applied to agricultural land 
it does not pay to apply more, because the return will not be 
in proportion to increased outlay. It mny pay to hoe corn 
three times, but not four or five times. The economist who 
formulated these propositions said that political economy is 
not eager to gather facts, because these general proi30sitions 
explained all facts of the socio economic organism. 

The deductive method is also called a priori, and we often 
hear of a priori economics. 

The Historical School.— About the middle of Ihis cent- 
ury there arose in Germany a stronger and more vigorous 
protest against the deductive method than ever before. 
Isolated voices had been raised against it previously. An 
English economist * had, about 1830, claimed that we could 
not out of our own inner consciousness with the aid of a few 
general propositions explain the complex phenomena of the 
socio-economic organism, and said if we Avould know how 
men live we must " look and see." Other economists had 
given utterance to similar opinions, but they had not been 
heard. But three gifted men in Germany, Carl Knies, AVil- 
helm Roscher, and Bruno Hildebrand, all university profes- 
sors, coming forward with what they called the historical 

* Rev. Richard Jones, in his book, The Distribution of Wealth and the Sources 
of Taxation. 



ECONOMIC METHODS. 119 

method, made quickly an iiiii>ression \n tlicir owi\ country, and 
their iniluence lias gradually s[»road throughout the civilized 
world. 

We ought rather to speak of an Jtidorical school than his- 
torical method. The term is used in a broad sense. It is 
better than inductive, because it includes much more than 
induction. The name historical is not accurate, but it is taken 
from one jirnminent characteristic of the school. JMen of the 
historical school, believing in observation, regarded the past 
e.xperietire of man in history as a valuable source of infor- 
mation. ]Men had, they claimed, been conducting experiments 
in their economic life during their entire past existence on 
this earth, and they had recorded the results of their experi- 
ments with more or less accuracy. History was considered 
then as a proper field for observation. At the same time it 
was never claimed that history alone was sufficient to enable 
us to construct a science of political economy. Other nations 
were to be studied, and hence we find the expression compar- 
ative method. Generalization from large inductions of facta 
was advocated, and we accordingly encounter the term sta- 
tistical method. 

But this is not all tliat is meant by the tendency designated 
as historical school, less accurately described as historical 
method. The expression historical school meant, and still 
means, many things. Perhaps it primarily signifies a pur- 
pose or even a philosophy of life. The ethical aim comes 
first, ^fost marked among the characteristifs of the histor- 
ical school of political economy is tlie supremacy ascribed to 
ethics. To the demands of ethics, it is felt, should the entire 
economic life be made subservient. The historical school 
means a broad, progressive spirit. It carries with it a differ- 
ent view of the State. The attitude of the philosophers of 
the period of the French Revolution is rejected. The State 
is held simply to mean a co-operative commonwealth. The 
historical school in its sj)read over the world may be termed 
a wave of humanitarianism. It lias both a negative and a 
positive meaning. It means rebellion against the old, at 



120 J^^STEODUCTION TO POLITICAL ECONOMY. 



first, naturally, strongly pronounced, and a constructive effort 
toward improvement. 

This prepares us better to return to modern methods. The 
historical school is catholic as to methods. All methods are 
used. Undoubtedly a limited place is given to deduction in 
the old sense. The old school started with general proposi- 
tions, called in logic premises. The new school believes that 
it is an essential part of political economy to gather those 
premises from which conclusions are drawn. 

It may be said, then, that modern political economy uses 
these methods : deduction, induction, observation and de- 
scription, statistics. Deduction and induction have already 
been discussed, and examples will be afforded by the sub- 
sequent chapters in this book. DeducUon is and should be 
used, and especially for certain classes of phenomena where 
other methods fail. International trade may be cited as an 
example. It is difficult to separate and interpret the facts. 
England has prospered, let us admit, under free trade. Was 
free trade the cause? Certainly other forces have been at 
work tending to make England a wealthy country. France 
has prospered under protection, and so has our own country. 
Was protection the cause ? How difficult to answer ! We 
seek aid from known general principles. 

Insuflaciency of the Deductive Method. — At the 
same time we must recognize that deduction is in a sense a 
dangerous method. Granted premises, conclusions will 
follow, and there is a likelihood that men will choose pi-em- 
ises even unconsciously which will lead to the conclusions 
desired by them. The factory legislation of England, de- 
signed to protect the laboring population of that country, 
serves as an illustration. It might have all been reasoned 
out deductively. Little children, almost infants, were em- 
ployed for long, weary hours in factories and in mines under- 
ground, and physicians asserted that the rising generation 
was being ruined physically and morally. Now how did this 
happen ? It has already been explained. A few employers 
led, and force of competition compelled others to follow them 



ECOXOMIC METHODS. ^^. 121 

iti their bad practices. We know enough about Buman nature 
to convince us that it is a hopeless task to insj)ire all members 
of an industrial class with lofty motives and firm purposes, 
and that consequently the moral plane of competition must 
be raised by the strong arm of the law. Yet the so-called 
inductive process, M'hich in this case means experimentation 
and observation, was the method which taught economic 
truth. As a matter of fact, reforms were carried through by 
an appeal to ethical sentiment. As stated, this entire scheme 
of reform can now be reasoned out deductively, but at tlie 
time deductive economists almost unanimously opposed it, 
talking all sorts of nonsense about the ruin of England's in- 
dustries from foreign competition if child labor were abol- 
ished and hours of labor reduced, and claiming that the 
entire profits of capital came in the last half-hour of toil, etc., 
etc. Observation has convinced economists that English fac- 
tory legislation was a good thing, and that it has established 
the industrial supremacy of England on a firmer basis than 
ever. 

So many premises are possible, and so many combinations 
of premises, that deduction is apt to mislead. "When used, 
conclusions should always be carefully tested by actual ex- 
perience, and we must be ready not merely to test conclusions 
but to draw conclusions from facts even in cases suitable for 
deduction, because human passion has such play in deductive 
processes. Deduction could not convince the hard hearts of 
English Grad grinds that factory legislation was a good thing, 
but facts as hard as their hard hearts were arguments which 
tht^y knew not how to resist. 

Observation and description have a large place in political 
economy. Logical processes have too exclusively dominated 
a great deal of political economy. More plain, simple de- 
scription is needed. Labor organizations, co-operation, and 
profit-sharing experiments, the workings of systems of taxa- 
tion, are to be observed and described. Institutions and 
customs are to be observed and described ; also tlie eft'ects 
of desires on production. Nothing is so little cultivated in 



122 AN INTRODUCTION TO POLITICAL ECONOMY. 

general as the habit of observation of economic and, in gen- 
eral, social phenomena. Text-books, written by those whose 
little learning was a dangerous thing, have aroused prejudices 
and have provided men with a set of shibboleths, terms and 
phrases, by which they decide all practical problems of states- 
manship in an offhand way, much more easily than by patient 
inquiry. Words have been taken for knowledge, and prog- 
ress has been obstructed. If readers of this book will keep 
their eyes open, their minds and hearts open for new truth, 
and consecrate themselves to truth, they will advance r.ipidly 
in economic knowledge. A brief outline or sketch of a 
science does positive harm when it leaves readers with the 
impression that they are well-informed. The aim of this 
book is not to leave readers with a satisfied feeling, but to 
awaken curiosity and to stimulate them to further study; in 
particular to arouse in them habits of careful and accurate 
observation of the economic life of all classes of men, hours 
of labor, wages paid, housing of the laboring class and other 
classes, various taxes paid in one's own town, the relation of 
local taxes to State taxes, the methods of granting franchises 
to corporations for the use of the streets, comparsions be- 
tween the cost of electric light when the electric lighting 
plant is owned by the city and when it is owned by private 
corporations, etc., etc. 

Analysis. — The statistical method has been described, 
and it remains to say a word about analysis. Analysis would 
seem to be an aid to other methods rather than an independ- 
ent method. It consists in separation of complex phenomena 
into parts so that they can be better understood. Economic 
knowledge is impossible without careful analysis. One of 
the most frequent causes of error is a lack of analysis, or, as 
is more commonly said, a failure to discriminate. Monopolies 
serve as an illustration. Some are good, others bad ; some 
are good under certain conditions and bad under others ; 
some are brought about of necessity by the inherent prop- 
erties of certain kinds of businesses ; others are artificial 
products which can be abolished. Nevertheless, monopolies 



Ecoyomc methods. 123 

are usually judged " in a lump." They are praised or blamed 
iiulisoiniiiKitcly, and legislators too often deaire to treat 
them all alike. Analysis enables us to separate monopolies 
and arrange them in groups so that each may be discussed 
and treated in an appropriate manner. 



Read Statt'stics and I'Jconoiulcs, by Professor Richmond 
M. Smith. The monograph on " iStatistik " which Chan- 
cellor von Riimelin contributed to Schonberg's Ilandbuch 
der Politischen Oekononiie should also be consulted by those 
"vvho read German. Morselli's work on /Suicide, in the In- 
ternational Scientific Scries, gives illustration of statistical 
method in that subject. 



CHAPTER XIV. 

ECONOMIC LAWS. 

" Natural La"ws." — Laws in the economic world have 
been much discussed, and there has been a parade of " nat- 
ui'al laws " which we have been called upon to admire and 
to obey. ISTow the word natural may be used in two senses. 
If nature includes man and every thing in the universe, it is 
mere tautology to say that every thing which happens is 
natural. But nature is generally conceived as including 
every thing except man's mind and its voluntary activity 
as manifested in his acts. By natural laws are meant laws 
precisely like those of the external physical universe. If 
this sense of the term be employed, it may be said that there 
are no natural laws in political economy. Why should there 
be ? Political economy deals with a different order of facts 
from the natural sciences, and its laws are of a different 
kind. The marvelous progress of the natural sciences, com- 
bined with what may be called a wave of materialism which 
in recent years has passed over us, has led to an undue ex- 
altation of natural laws, and people come forward triumph- 
antly with the claim that they can demonstrate the existence 
of natural laws in the business world or even in the spiritual 
world. All that they appear to accomplish, however, is to 
show analogies between certain orders of facts. It is no 
disparagement either to the social organism or to the re- 
ligious life to admit frankly that they are not governed 
by natural laws, that is, the laws of the external physical 
world. 

" Laissez-Faire." — What are these natural laws of the 
socio-economic organism ? Let some one enumerate them. 
When this has been attempted no progress has been made 



ECOXOMIC LA ir.Sr. J25 

bovoiul a few truisms and self-evident propositions whieli 
political economy never established. One writer speaks of 
the maxim laiMt::-faire, the theory of non-interference and 
passivity of government, as natural law. " It carries with 
it," says this writer, '• the revelation of our science, and an- 
nounces the presence of those natural laws which it is the 
mission of the science to study. At the same time this 
ma.xim is the first-fruit of this revelation." Unfortunately 
for the theory of natural laws, this maxim, laissez-faire^ 
has generally been abolished both by science nnd practice in 
all civilized lands. It is thought that it iierformed good 
servii-e at the time it became powerful, but that it is no 
longer suited to the needs of the modern world. Imagine 
physicists as renouncing the law of the attraction of gravita- 
tion as no longer adapted to our world! 

Self-interest. — But have not men always been actuated 
by self-interest ? "VVei-e not the Medes and Persians thou- 
sands of years ago, like the Americans of to-day, moved by a 
desire to advance their own interests? Is not here a natural 
law? at any rate — nnd this is usually meant — a law which 
acts with the regularity and certainty of the physical uni- 
verse ? By no means. Self-interest is not a constant force 
which can be accurately measured. It leads one man to 
cheat, another to steal, it leads a third to underhand busi- 
ness practices which just keep within the law. It prompts a 
fourth to deal honestly, to describe his wares as they are, 
and to sell them at a " fair price," and at the same price to 
all. Self-interest induces some men to smuggle, but induces 
others not to smuggle. We observe the proportion between 
smugglers and non-smugglers. Now let us change the laws, 
reducing or raising taxes on imported commodities. Lo! 
the proportion between smugglers and non-smugglers has 
changed. Some adulterate their goods; others do not; some 
manufacturers do all they can to secure the passage of laws 
regulating and restricting child-labor; other manufacturers 
oppose the passage of these laws and break them after they 
have come into force. Then we hear about real self-interest 



126 AN INTROD UCTION TO POLITICAL ECONOMY. 

and apparent self-interest. Doubtless there is such a dif- 
ference, but must not a man be moved by different mo- 
tives than self-interest to perceive his real self-interest? 
Some claim that self-interest may be compared to the attrac- 
tion of gravitation. They say that other foi'ces act counter 
to the attraction of gravitation, as the friction of the air or 
the force of the wind. Yet all these forces do act, and the 
motion which takes place is a resultof their combined action — ■ 
a resultant. This is not the case with human motives. We 
choose, and one motive displaces another. Again, back of 
motives there are laws and institutions on which motives 
act. How will self-interest act when custom fixes prices ? 
how when competition fixes prices ? 

Social Lav/s. — It must be apparent that we have to do 
with laws different from those which govern the physical 
universe. Our laws may be called relative laws, or histor- 
ical laws, or, if one pleases, social laws. They are the result 
of the peculiar constitution of our politico-economic life, 
which is made what it is by the action of human desires 
and passions and efforts upon the physical universe governed 
by its own laws. The will of man is a main factor in all 
politico-economic phenomena, and this will must be regarded 
by students of society as itself a creative energy, introducing 
new forces. We can observe certain regularities and ten- 
dencies in all social phenomena, and when statistics began 
to make rapid strides these regularities and tendencies were 
called laws. When it was observed that out of ten thousand 
people a certain definite number every year got married, an- 
other definite number procured divorces, still a different but 
definite number committed crimes, a precise number which 
could be told in advance took their lives — when, in short, 
all social phenomena appeared to recur regularly year after 
year — a feeling akin to fatalism arose, and some statisticians 
were inclined to look upon these regularities as laws of the 
external world beyond the control of man. Further in- 
quiry revealed differences in these proportions between dif- 
ferent lands, and showed further that differences could be 



KtVXOMJC LA \VS. 127 

brouglit about by the action of man. The ])henoint'na of 
iiiteinperance liave in parts of Kiigland and other countries 
been detinitely altered by ai^itation of various kinds for 
reform. We have at times to do with powerful tendencies 
in economic life, and these for a period appear to resemble 
laws of the physical universe. The tendency of certain 
pursuits, like gas service, street-car service, telephone service 
and the like, to become monopolies acts with a power like 
that of a mighty river, and we can with safety predict that 
apparent competition in the field of natural monopoly will 
prove both illusor}'^ and temporary. Most instructive is the 
observation of great currents in our economic life and the 
study of the forces back of them. 



Read the author's monograph, The Past and Present of 
Political Economy^ published by the Johns Hopkins Univer- 
sity in its Studies in History and Political Science. 
6* 



CHAPTER XV. 

A FEW REMARKS ON THE UTILITY OF POLITICAL ECONOMY, 
WITH SOME GENERAL CONSIDERATIONS ON THE RELATION 
OF POLITICAL ECONOMY TO OTHER SCIENCES. 

1. Political Economy a Useful Science. — The pre- 
ceding pages have, it is hoped, convinced the reader that 
political economy is a useful study, and one worthy of the 
greatest minds. It affords room for the speculative intellect, 
and yet speculations can be tested by the experiences of 
actual life. Fancy and imagination, so necessary to all sci- 
ences, have here ample scope for their exercise in attempts 
to construct hypotheses to explain social phenomena. The 
best powers of observation find opportunities for service, 
and experience will farther sharpen them. The keenest 
analytical intellect will never be at a loss for material on 
which to bring all its acumen to bear. Philosophical in- 
stinct, which seeks insight into the innermost nature of 
things, is most welcome in political economy. Philanthropic 
sentiment is gratified by the discovery of ways to benefit 
the human race. 

It is, however, frequently asserted that political economy 
is not practical, that it is in fact " a mere theory," and as 
such its claims are often rejected by business men. This 
is short-sighted. Political economy has to do with the 
socio-economic organism, and knowledge can be acquired 
about this by systematic study in the manner described, and 
this knowledge can be transmitted and increased by accumu- 
lation from generation to generation. The actual experience of 
the so-called practical man does not take the place of economic 
knowledge. His experience is too narrow and limited. If he is 
a man of small nature he is very positive of his own infallibil- 
ity, and looks upon the claim of the economist that he can 



THE UTILITY OF POLITICAL ECONOMY. 129 

toll liiin S()nu'tliiii'4 about the business worlil :is iiii\v:irr;iiit;il)lo 
prosiimption. Yet his conclusions are diametrically «ii)i)()se(i 
to those of a practical man in another line of hnsiness on (ho 
opposite side of the street, and hoth of them ditrir in views 
from the opinions of practical men in a nei^hhorinL,' city. 
It is because the range of facts of eacli is exceetlin^'ly narrow 
and each has been entirely absorbe<l in his own affairs. It is 
on this account that the attempt to improve politics by put- 
ting practical business men in office has so often proved dis- 
astrous, and men liave been again and again obliged to go 
back to the so-called professional politician. Business facts 
are not all those needed in government. Finances of govern- 
ment, for example, ought in some respects to l)e conducted 
on }»rinciples exactly opposite to those which obtain in private 
financiering. Political economy is a young science — as a sepa- 
rate science scarcely over a hundred years old — and it behooves 
political economists, though conscious of their own value, to be 
modest in their claims and to remember that much is yet to be 
learned by the wisest of them. Nevertheless, how diverse are 
the elements which have contributed to this body of knowl- 
edge! In the historical sketch it will be seen that philosophers 
have helped to build it up, that distinguished and remarkably 
successful business men have contributed their best thoughts 
to advance its growth, that statesmen of the leading civilized 
nations have participated in its development, as well as those 
who have been primarily political economists, while great 
philanthropists have helped to give it shape. For a century, 
then, business, philosopliy, jurisprudence, and practical poli- 
tics and philanthropy have helped to make political econ- 
omy what it has become, and the fruit of so much intel- 
lectual effort and such extended experience is not to be 
regarded lightly, even while it is recognized that on account 
of the complexity of the subject-matter political economy is 
yet in an imperfect condition. Even where it cannot speak 
authoritatively it is always entitled to a respectful hearing. 
The truth is, every body who is not a fool must act accord- 
ing to some theory, l)Ut the ordinary man is often guided in 



130 AN INTR OD UGTION TO POLITICAL ECONOMY. 

economic utterances by antiquated theory which has gradu- 
ally percolated down through several social, strata until it has 
reached hira. 

A practical man might as well try to get along without a 
Ia,wyer as a modern nation without political economists. The 
political economist is in fact to the people as a whole what 
the lawyer is to the private man. It is the business of the 
political economist to guard the interests of the masses, and 
to suggest measures to promote their welfare. The political 
economist may in some respects be compared to a physician, 
only that he deals with the body politic. We can imagine 
a man saying, " I know more about my own body than a 
mere theorist who has been studying under college professors 
and working in laboratories and has never had any practical 
experience with my body." Yet we know that such talk is 
nonsense. It is because the practical business man has so 
often failed to recognize this and to remedy his own short- 
comings, and has advanced his crude and antiquated ideas as 
practical guides, that one of our deepest thinkers in political 
science has spoken of the " practical man as the bane of our 
political life." Certain it is that our government will con- 
tinue to be almost exclusively a government of lawyers until 
people more generally take pains to instruct themselves in 
the various branches of political and social science. Gov- 
ernment can never be conducted like a manufactory or a 
mercantile establishment, and every proposal so to conduct 
it reveals ignorance of first principles. 

2. Political Economy and Other Sciences. — Every 
science contributes directly or indirectly to every other. All 
knowledge is one. But we are now concerned chiefly with 
that group of sciences which has to do especially with human 
society. Before we pass on to remarks about social sciences 
a word must be said about philosophy, physiology, and hy- 
giene. 

Philosophy and Political Economy. — Philosophy is 
useful perhaps especially as a mental training. Philosophy 
seeks to look into the fundamental principles of all knowl- 



Tin: UTIUTY OF POLITICAL ECOXOMT. J31 

edge ami iiuinirt's tlu-ii into the nature of tlie State and of 
society and tlio aim of lilV. It seeks a final reason for things. 
It gives bioad and gi-ncroiis views, and lifts u|) the mind in 
the contemplation of immense themes. Philosophy helped 
to give birth to political economy, and when in England it 
seemed on the point of collapse philosophy gave it new life. 
Philosophy has again and again been a source of inspiration 
to German economists, and perhaps the lack of philosophy 
explains the sad deaduess of political economy in France, 
where for a hundred years almost nothing has been done 
to advance the sciem-e. Philosophers like Fichte, Hermann 
Lotze, must to-day assist economists who are competent to 
understand them. Logic, regarded as a branch of knowl- 
edge, is especially useful on account of the discipline it gives 
in careful reasoning, j)articularly in analysis, discrimination, 
and detection of fallacies. 

Physiology and Hygiene and Political Economy. 
— Pliysiology and hygiene are helpful in the discussion of 
social questions, and too little has been made of them hith- 
erto. Physiology, for example, ought to be consulted in 
questions like child labor, labor of women, especially married 
women, the length of the working-day in factories and in 
open fields, etc. Hygiene furnishes rules for sound physical 
life. ^f. de Laveleye even says that the science of health 
ought to determine the normal rate of wages. The human 
body is the chief source of wealth, and physiology and 
hygiene must teach us how to conserve and inci'ease our 
bodily powers. 

History and Political Economy. — History reveals 
to us the economic life of the past with its instruction and 
lessons. History clearly presents many of our problems, as, r 
for example, the downfall of States. How can we guard 
against the evil unless we truly know its nature ? It seems 
clear that economic forces are prominent in the decay of 
civilization. But we have not yet a sufficiently accurate and 
detailed knowledge of them. A profounder study of eco- 
nomic history must precede a satisfactory political economy. 



132 AN JNTROD UCTION TO POLITICAL ECONOMY. 

At the same time history cannot be understood without a 
knowledge of economic forces which give it shape. This is 
clearly seen, and as the writer's colleague, Professor H. B. 
Adams, well says, political economy is becoming historical, 
and history is becoming economic. 

Ethics and Political Economy. — The relation of po- 
litical economy to ethics has already been sufficiently indi- 
cated. Ethics is connected with what ought to be both for 
individuals and for society, and if ethics has heretofore consid- 
ered man too exclusively as an isolated individual, its prog- 
ress for the future evidently lies in the examination of social 
relations. It may be doubted whether ethics, except as a 
social science, can have any real existence. Political econ- 
omy takes what ethics has to offer as a guide for the devel- 
opment of economic life. Ethical conceptions have always 
governed all social life more or less perfectly. The economic 
life of ancient Oriental nations was more under the dominion 
of ethical principles than has been that of modern Occidental 
nations. The ethical principles of the East were not of so ex- 
alted a nature as ours, but such as they were they permeated 
their life as ours do not. The national economy of the 
Jews illustrates this excellently. During the Middle Ages 
the Church attempted, and for a time with some success, to 
subordinate all social life-spheres to the demands of ethics. 
Personal service, returns for loans, and prices were regulated. 
The conception " fair price " [justum pretiuni) was f ormu^ 
lated, and exerted a powerful influence. It seems clear to 
the writer that industrial peace can never be secured until 
the supremacy of ethics is recognized by public opinion, and 
is made effective by laws and constitutions. It is on this 
account that the institution of " fair rents " in Ireland is to 
be welcomed. It may or may not work well in this particu- 
lar instance ; that is, the proper method for giving effect to 
ethical principles may not have been adopted, or it may 
have been ; but the supremacy of ethical considerations in 
either case is recognized and the freedom of contract dis- 
tinctly subordinated, as in American usury laws. Coai*Js fix 



\ 



THE rriLITY OF rorjTfOAL ECONOMY. 133 

rents which are reganleil as "lUir" in Iivland irrespective 
of all aijreoinents. It may be dilHcuIt to tell in general 
what is lair, but not so hard in a concrete instance. At any 
rate it is actually done. " Live and let live" is our homely 
adage which expresses a popular idea of fairness, and this 
seems in a rough kind of way to give the Irish land courts 
a guiding principle in ileteriuining fairness. Ethics should 
investigate more carefully than it has done the nature of 
mutual rights and duties. 

Political Economy and Religion. — We may pi-op- 
erly enough speak of a knowledge of religions as a science, 
or even of a knowledge of one religion. Theology is a sy.- 
tematic treatment of a certain order of related facts. But 
here we are concerned with religion not so much as a science 
as an inspiration, as a power to direct life, and thus as inti- 
mately connected with ethics. Religion, like ethics, supplies 
norms for conduct, but it does more. It supplies a moral 
force to induce men to acknowledge the truth, and to do what 
they know to be right. 

Every system of religion must affect the general charac- 
ter of the nation under its influence. The fatali5*m of the 
Turks leads naturally to indolence, while the old Jewish 
religion with its high estimate of the good things of tliis 
world tends to stimulate its followers to activity and to 
accumulation. Christianity moderates desires, sets a higher 
aim than wealth before people, but dignifies tlie man who 
gains his bread by honest toil, and enjoins diligence and an 
improvement of all talents comtnitted to us. It teaches us 
to love our fellows, and this lias encouraged enlightenment 
of the masses, and enlightenment increases prosperity. Love 
for our fellows prompts us to promote their physical welfare 
in every respect, and this tends to conserve and increase their ^. 
strength. 

It is not ])racticable at present to take up every one 
of the constantly increasing number of branches of social 
science and to trace the relations between it and political 
econoiajr. These relations must often be quite obvious. The 



134 AX INTRODUCTION TO POLITICAL ECONOMY. 

treatment of the dependent and criminal classes brings us in 
relation to a multitude of economic phenomena. These 
classes impair the productive power of the community, and 
the number of persons belonging to them is largely, though 
not wholly, determined by industrial conditions. If the 
laboring population is housed in crowded tenements in the 
slums of cities, it will help to swell the ranks of vice and 
pauperism. If child labor is general, a generation weak in 
body and will-power, with depraved habits early acquired, 
may be expected. Many such reflections will occur to the 
reader, and observation of the life which surrounds him 
will every day confirm what is said. Prison labor is one 
topic showing the connection, though only a small part of 
the connection, between penology and economics. Contract 
labor has injured the working-men and their employers. It 
has in Baltimore destroyed for free labor an important branch 
of a large industry — namely, the manufacture of marble slabs 
for wash-stands, Pullman sleepers, bureaus, and the like. 
But if the labor of prisoners is not to be hired to contractors, 
to the injury of the upright, how shall it be organized ? for 
idleness is barbarous inhumanity not to be tolerated. Here 
we come to economic questions. Poor relief, public and pri- 
vate, is as intimately connected with economics, and it has been 
discussed, perhaps, chiefly by economists. It was an English 
economist, Malthus, who, on economic principles, helped to 
introduce a reformation of the poor laws of England in 
1834. 

Anthropology may be mentioned under this general 
head. It is sometimes conceived of in a large sense as the 
science of man. It would then include sociology and every 
thing else about man which could not be brought under the 
general designation social relations. Very often, however, it 
means pi-ehistoric and early man, man in the lowest stages of 
his development, and discusses the dawn of civilization. It 
includes the economic life of prehistoric and early man as 
one part of its field. 

Law and Political Sciences. — The relation of political 



THE rnrjTY or mr.mcAL KmynMr. ;,?«[ 

economy to law is a close one, especially in <>iir day, for pwlit- 
ic-al economy explains tlie reasons <or a great i)art of ihe 
laws, their nature and the principles which should control 
their development. Many of the subjects which belong to 
political economy belong also to law. Both treat of posses- 
sion, property, inheritance, sale and purchase, loans, gifts, 
wages, rent, taxation, combinations of labor and capital, and 
like topics. Political economy touches the innermost nature 
of law questions. It miglit not be altogether inappropriate 
to call political economy "the spirit of the laws," taking the 
name from Montesquieu's book which bears that title. 

As we have seen, political economy has by one wi-iter been 
defined in such a manner as to convey the impression that it 
has to do exclusively with legislation. This was rejected as 
too narrow a conception. Yet if we think of live economic 
questions we shall find that they are, very generally at 
least, in part legislative questions. Topics such as the.^^e 
occur to one : the tariff, local taxation, the silver question, 
bimetallism, railways, child labor, industrial training. 

When we open a law book on real estate, what is found ? 
If it is an American or English book, piobably very little 
save present legal facts. The law is thus and so, says your 
legal authority ; nothing more. Political economy tells us 
how private ])roperty in land came to exist, why it exists, 
and explains the reason why some changes in land laws 
should be made, and why some people think they should be 
radically altered and private property in land, as at present 
understood, abolished, and why others reject this view. 

What has been said about real estate holds equally with ref- 
erence to laws of bequest and inheritance. No man is fit to 
legislate on these subjects who knows nothing about political 
economy. Commercial laws and the laws pertaining to cor- 
porations can likewise never be properly handled without the 
aid of our science. 

Political economy is needed as a corrective of certain 
tendencies in the law. Private law has to do with indi- 
vidual rights, and lawyers a<;quirc a habit of looking at 



136 AN INTR OD UCTION TO POLITICAL ECONOMY. 

all questions from an individual stand-point. This be- 
comes painfully apparent in reading English and Ameri- 
can judicial decisions. The rights of the people as a 
whole, that is, of the many, are overlooked too often for 
the sake of a few interested parties. It is not meant to 
attack the integrity of American and English judges, because 
with comparatively few exceptions they have been men of 
blameless character. The trouble lies with the point of view 
which naturally arises from an exclusive consideration of 
private law. Every judge is familiar with the bearing of 
legal questions on the private interest of individuals, but too 
often loses sight of the millions not present before him. If 
we go back to olden times or foreign countries, about which 
our judgment is fairer, we can all see this tendency of law- 
yers as a class, both in legislatures and on the bench, to sacri- 
fice the many to the few. The common lands of India serve 
as an illustration. English lawyers could not grasp the fact 
of common property of a village in land, and so looked about 
for a private owner, and mistaking a tax collector for pro- 
prietor they made him a real proprietor. Thus were the 
villages robbed by legal incapacity to grasp the economic 
situation. The same thing happened in England, as Sir 
Henry Maine, John Stuart Mill, and others have shown. 
The common land belonging to English villages was allowed 
to be inclosed by lords of manors, and thus the property 
rights of the forgotten millions were again sacrificed. 

Private law is concerned with petty details, and attaching 
undue importance to them is apt to exaggerate the importance 
of mere legality, the letter and machinery of the law. Politi- 
cal economy gives large vicAVS and general principles. 

Voltaire called lawyers conservators of ancient abuses, and 
Professor Bluntschli speaks of law in itself without any cor- 
rective influence as "tending to the numbness of death," 
failing "to keep step with the development of life." Rule 
by judges tends to petrifaction, and is conservatism of a rev- 
olutionary because obstructive type. Lawyers have doubt- 
less caused by obstruction many revolutions, and they can 



THE UTILITY OF POLITICAL LVOXOMV. 137 

rarely rccoiicilo themselves ta great progressive changes like 
the independence of the American colonies or the unity of 
Germany or of Italy until after these things have taken 
place. The reason is that lawyers are always looking back 
to the past for legal precedent, never ahead, and this begets 
a dangerous habit unless other tendencies are at work to 
correct, or perhaps, more properly, modify the force of this 
conservatism. Political economy is progressive, and helps to 
counterbalance a dangerous tendency toward revolutionary 
conservatism. 

Law is concerned with modern industrial life. To an increas- 
ing extent are legal questions becoming almost purely eco- 
nomic, as seen in boycott, black-listing, conspiracy, and combi- 
nation cases. Legislators make laws to apply to these cases, 
and judges, in their decisions, do not merely find the law; they 
make it. Recently in such cases American judges have been 
more active in legislation than legislators themselves. Yet leg- 
islators, and particularly judges, are unfit to make decisions, 
and cannot make decisions which will stand the test of time 
without a profound knowledge of political economy. It is 
thus with propriety that France and Prussia require a knowl- 
edge of political economy in all candidates for admission to the 
bar, and that some of our best law schools have rendered in- 
struction in political economy at least accessible to law stu- 
dents. It should be a part of every law course, and every 
candidate for admission to the bar should be compelled to 
pass a thorough examination in political economy. 

But political economists need law. Perhaps no study is 
more useful to them. It is a splendid training for the mind. 
The material of law and political economy is the same, but 
in law we have a ripe experience of thousands of years in 
analysis, arrangement, and exact statement. It gives precise 
facts about present institutions. It shows the basis on which 
progress must build. It shows how deep are the roots of our 
present social order. It emphasizes the importance of the 
statics of political economy and corrects a tendency toward 
revolutionary rashness which is the opposite of all true prog- 



138 AH LYTROLUCTION TO POLITICAL ECONOMY. 

ress. Finely do law and political economy supplement 
each other. 

We have been speaking of private law, which has to do 
with legal relations of private parties. We must allude to 
public law, which is concerned with the relations of public 
bodies to one another, or witli relations of public bodies and 
private parties.* Public laio and politics constitute political 
science. The relation of them to political economy is suffi- 
ciently obvious. Political economy places aims before polit- 
ical science, and political science strives to realize these along 
with its other ends. Constitutions, the highest expression 
of public law, must be made to conform to industrial condi- 
tions, and this conformity can be brought about alone by 
political economy. The trouble with our American con- 
stitutions with respect to taxation, bankruj)tcy, and di- 
vorce and marriage — and divorce and marriage imply the 
weightiest kind of economic relations — is that they have 
not kept pace with economic changes, and the difficulty of 
doing this is precisely the most serious danger of written 
constitutions. That is the weakness of our federal constitu- 
tion. Economic life changes continually, but that, practi- 
cally unchangeable, cannot be made to conform to industrial 
conditions. 

International law, treating of the relations of sovereign 
States, is a department of law which is constantly increasing 
in economic importance. Economic relations are becoming 
international with a truly astounding degree of rapidity. 
Competition is international, and Ave have world markets for 
staples. Combinations of labor and capital are international. 
Government itself forms international postal and telegraph 
unions. Switzerland has formally proposed to other gov- 
ernments international factory legislation to protect women 
and children, and other wage-receivers, so as to place manu- 
facturers in different lands on the same footing in competi- 

* See the excellent work on Jurisprudence, by T. E. Holland, fourth edition, 
chapter ix. My definition of public law is somewhat broader than 
HoUaud's. 



THE UTIIJTY OF POLITICAL ECOXOMV. 139 

tion. A body of international law with effective means for 
its enforcement is needed, as never before, for the organiza- 
tion and regulation and preservation of international eco- 
nomic relations. 



Read chapter i of Introduction to Blimtschli'8 Modern y 
State, of which an English translation exists. Those who 
read German will do well to consult Cohn's National Ocko- 
nomie, second chapter of the Introduction. Professor Henry 
C. Adams's article on '• Economics and Jurisprudence," in 
the pamphlet Science J^couomic Discussion, may be read 
with profit. It is published by the journal Science in New 
York. 



PART II. 

PRODUCTION. 



CHAPTER I. 

INTRODUCTORY. 

Utilities. — Man creates no new matter. Neither tlio farm- 
er nor the merchant adds one atom to the existing material 
of the earth. Yet tliey are both properly called producers. 
What do they produce? Siini»ly quantities of utility. And 
hjovv do they prm^ljAcc^o[uantitiefl.of utilities'? Simply by put- 
t ing: til ings hi their proper places. Man can only rnove 
things, and when he moves them inji suitable manner he cre- 
ates^ utiUties. "This one ojieration," says John Stuart Mill, 
"of putting things into fit places for being acted upon by 
their own internal forces and by those residing in other nat- 
ural objects, is all that man does or can do with matter."* 

It has seemed to some that the farmer is more truly a pro- 
ducer than the manufacturer, and the manufacturer than the 
mercliant; biiL^uch_Li__nQt at all the case. All of these in- 
dustrial classes do the same thing. They produce utilities 
by moving the places of things. The f<armer_adds nothing 
to the material of the globe, but he_giv.cs^dii:ecti_Qn. to the 
forc es of nature so that existing material becomes better 
adapted to the wants of man, and thereby more useful. He 
drops corn into the earth, and thereby puts it into a tit place 
for being acted upon by external natural forces. From time 
to time he removes weeds and tlirows earth about the stalk 
which grows up, and portions of earth, air, and moisture take 
new ix'laiive positions and the result is again corn, and moic 
corn. Changed places and natural forces have rendered 
things more useful. All this while man has done nothing 
but ])ut things in fit places. 

The manufacturer changes forms and combinations of raw 
* Political E onomy, Book i, chap, i, § 2. 



144 AN INTROD UGTION TO POLITICAL ECONOMY. 

material by jjutting things into fit places, and likewise pro- 
duces utilities. The merchant similarly takes thino;s from 
places where they are less useful to Jglaces where they are 
more useful. Pie produces utilities as truly as the farmer or 
manufacturer. It may well happen that the utilities pro- 
duced by the merchant could be produced with a smaller ex- 
penditure of economic force, and that by a better organization 
of the factors of production saving could be secured ; or it 
may be that at times the merchant has been able to secure a 
larger return for the production of a given quantity of 
social utility than the farmer ; but all this is no justification 
whatever for the popular impression that he is less pro- 
ductive than any other person who is engaged in economic 
work. 
—h I Pi' oducti on, then, means the creation of utilities bxJhe 
application of man's mental and physical powers to the 
physical universe, which furnishes materials and forces. 
[Tliis application of man's powers is called labor. 

Those qujii titles of utility which resultJxojiL, labor are 
called econornlc goods, but not all economic goods are the 
result of labor. Economic goods have not been defined thus 
far, but they have been described as material good things. 
Probably any reader of this book would call a vacant lot on 
Fifth Avenue in New York City a material good thing, even 
if no person has ever expended a day's labor on it. It is de- 
sirable at this point to have a clear idea of economic goods, 
and a definition is offered. We will begin with the Avord 
good. Every thing Avhich satisfies a human want Ave call a 
good ; and here on the threshold of our science we see how 
absurd it is to say that politico-economic laAVS a/"e inde- 
pendent of man, and would be Avhat they are if man did 
not live on the earth. We cannot get half way througli our 
definition of economic goods before Ave have brought in the 
human element. 
-^ - Goods we divide ip to free goods and economic-gooiig. 
Free goods a.re those which exist in superabundance, and are 
offered freely to every one Avithout charge. Ah' and water 



INTR D (70 TOR T. 145 

are usiiany free goods. Jjandin a new country is frequently 
a Irco gooil. 

Iikoiiomic Goods are those Goods ichich are usually and 
rcf/idarhj obtained by man only by exertion^ and w/iic/i, or 
the use o/ ichich, may be disj)0sed oj for other Goods. — They 
may be furtlier characterized as directly or indirectly ex- 
changeable for all goods which come on the market. 
After money comes into use they may be defined as goods 
which exchange fur money or as goods which are bought 
and sold. 

A few points require further explanation. " Usually " they 
are obtained by exertion. One may pick up a dm^mond or a 
nugget of gold upon which one has stumbled. Mere picking 
up of these articles cannot properly l)c called labor. 

Man's Original and Acquired Powers. — The goods or 
their use may be disposed of for other goods. This enables 
us to include in our definition both material and immaterial 
goods, like a person's technical skill acquired by laboi-, and 
often very productive. The central point of our science is 
the conception of man in his relations to material good things, 
but it does not seem j^racticable to exclude utilities fixed and 
embodied in human beings from the rank of economic goods, 
because man cannot be bought and sold. Once many men 
could be bought and sold, and they then took their place 
with horses and oxen among material goods. Now man may 
sell the use of his powers. It is hard to draw the line, but it 
may be done, with sufficient accuracy, by keeping in mind our 
central conception. We would not speak of the cultivation 
of our faculties, merely for the sake of our own better devel- 
opment, as economic exertion in any strict sense, although it 
might well have economic consequences. The economic life 
and its goods are subservient to man. We call the acquisi- 
tion of a technical skill an economic process, because it has 
reference to the creation of utilities incorporated in material 
good things. The direct labor expended on matter we may 
call a primary economic process, and that labor which pre- 
pares us to expend our augmented power on material things 






146 AN INTRODUGTIOK TO POLITICAL ECONOMY. 

to i-ender them useful, or more useful, we maj'^ call a second- 
ary economic process. There is a production when eco- 
nomic exertions and non-economic exertions meet, as in the 
common-school education of the young. There are such bor- 
der lines, where discrimination is difficult or impossible, in 
natural sciences as well as in social and mental sciences, but 

1 they need not as a rule occasion much difficulty, 
""1^ "Wealth. — Political economists have usually called eco- 

' nomic goods wealth, but this is objectionable, because wealth, 
in ordinary language, generally means large quantities of 
economic goods, either absolutely, in proiJortion to one's wants 
or, as is oftener the case, relatively, witli^_refere.nce- to tlie 
possessions of others. Wealth is also used often to denote the 
economic goods belonging to an organized society of men, 
especially of a nation. "VVe compare the wealth of England 
with the wealth of France or Germany, We would hardly 
say Germany is not a wealthy country, but, rather, not a rich 
country. Notwithstanding the ambiguity, wealth has so 
generally been used for economic goods, and is so conven- 
ient a term, so much more so than the larger term of two 
words, that it may not be possible, perhaps not even desir- 
able, to displace it entirely. The tAvo tej'ms can be use/i in- 
terchangeably in many cases, care being taken to employ eco- 
nomic goods wherever it will make our meaning clearer or help 
to avoid misunderstanding. 

The Individual and Society. — One distinction runs all 
the way through political economy, and that is the distinc- 
tion between the social and the individual stand-point. We 
have consequently to distinguish between social and individ- 
ual wealth, for what is wealth to the individual is often not 
wealth to society, 

IMany illustrations offer themselves. A niortgage is indi- 
vidual wealth. If the_j3]aim it stands for is extinguished 
society is neither richer nor poorer. Similarly all_ state, 
municipal, and federal bonds represent claims on the indus- 
try of the people. If all these bonds should be destroyed, 
the bondliolders as individuals would suffer loss, but society 



INTRODUCTORY. lij 

as a whole would 1)c ncitluT richer nor poorer, anrl society ex^ 
elusive of ItoiHllioKlers would li;ive gained al their cxpeiiMj.X^ 

Census Estimates of Wealth.— All census returns of 
wealth are, in many respei-ts, of necessity defective and mis- 
leading. First, census returns ai;einade ill money. If com- 
modities are very abundant the price will be low, but t he/ V^ 
real wealth of the country is y;reut. Let us suppose the 
quantity of cotton cloth of which account is taken doubles 
betweeiL two censuses, aiid^ that the price falls one half. 
The ^vealth of jlhe country has apparently not increased at 
all, but in_j-eality it has doubled, beciiuse wealt h consist s in 
quantities of useful things. Secojitl, private wealth is i ii- 
cj_iiiled, w hich is not public wealth, but which often resem- 
bles a taxing i)ower. This is^llie case with many franchises 
recklessly granted to private corporations. An illustration 
will help to make the author's meaning clear. Baltimore 
street-car comj>aiiies pi\y_to the city for the maintenance of 
j)iiblic parks nine dollais out of every hundred they collect 
in addition to ordinary State and city taxes. Let us suppose 
this special payment for the use of the streets abolished; >t 
would immensely increase the value of the street-car com- 
pa iiies' fr anchises, ami they would figure in census reports 
for a larger amount, and there would be an apparent but 
altogether illusory increase in national wealth. The com- 
panies W(juld simply have gained at the expense of the rest 
of the community. The t elegr aph in other civilized coun- 
tries than ours is pubUc pi^operty, and caii only b e valued at 
the_co$t of the plant, land, building-, etc., while in the 
United States there is an enormous additional valuation on 
account of the fact that the telegraph is private property, and 
that in the nature of things it is a monopoly. A ppa rently 
in this respect we are far richer than countries like France 
and^ Germany, but again census returns arc misleading. We 
are poorer in many ways. 

'i'ake our own post-office. It can ligui-e in census returns 
only for actual value of its plant, while if it should be made 
over to a i)rivate corporation it would soon have a capitaliza- 



148 AN INTRODUCTION TO POLITICAL ECONOMY. 

tion of hundreds of millions of dollars. Ap£arentiy:-.the 
wealth of the country would be increased, but really we 
would be poorer, for we should be obliged to support :in 
army of highly paid officials, a host of costly attorneys, and 
an expensive and demoralizing lobby to shape post-office leg- 
islation for private ends. 

Most countries haye_granted limited charters to gas com- — 
])anies, street-car corporations, steam railway companies, and 
the like. Very often, at the expiration of a given period, as 
thirty, fifty, or ninety years, the entire pro])erty, without rec- 
ompense, pas ses ov er to the people^ and becomes public, lil<e 
our post-office. This is the case with street-cai's in Glasgow, 
Scotland; and Berlin; Qermany, and s team j;ailways in France 
and Austria. Elsewhere the right is reserved to ])urcliase 
property at the expiration of a prescribed period, paying for 
the plant only, at an appraised valuation, giving nothing for 
the franchise. This prevents an inflation of values, but en- 
riches a country. 

The results of the ho_usehold work of women do not ap- 
pear in the census returns, and yet they include a large part 
of the utilities created every year in a country. If bread 
should universally come to be baked outside the home it 
would increase the wealth of the country as reported in the 
census returns. 

We have is olate d production and social production, do-, 
raestic production and production of economic goods for, ex- 
changes, all of which expressions have been sufficiently ex- 
plained in the previous part of this work. We have also 
individual and social production in a sense just described in 
this chapter. Individual production is sometimes social de_- 
sti'uction of economic goods. A proprietor of a lottery ^sia^'' 
produce things valuable to him and acquire wealth, while his 
activity is from a social stand-point pestiferous. The same 
thing may be said of the class of saloon-keepers, and of all 
those unhappy wretches who minister to vice. W^e have 
also the familiar terms of production on a large scale and on 
a small scale, well enough understood. 



lyTRODUCTOHY. 140 

Over-production and Under-consumption. — The 
piir ppse of produ ction is coiisumj)tion^ and if more is pro- 
duoed more iiiust, In* {•oiisiimed. Power ((> consume is racas- 
ured by piiivliasing jx^vcr, and j)o\vtx_l)J_<;oi> sumption sets a 
limit to_j)i*odufiu)ii. Tiierc is nonsuch lliiiii; a-< general. OYcr- 
produ ctiorij for more economic: giTods of all kinds have never 
been produced tlian men really need to satisfy their legiti- 
mate wants. On t he contrary, no t enoug h has ej^er yet. been 
produced for this purpose. Soinetimes production does not 
go forward evenly, and there is an undue amount of labor 
and capital directed to certain pursuits, but until all tneri are 
well-clothed, housed, and fed, and furnished with material 
appliances for their highei* life, like books, pictures, musical 
insinmients, church buildings, etc., it will be a manifest ab- 
surdity^ to talk jibout a general over-production. When 
there is almost universal dirtic-iilty in dis[)osing of goods pro- 
duced the real phenomenon i s desc ribed by uiider-cnnsump- 
tion. Men want these goods; they are williiig to give serv- 
ices in exchange for them, but they cannot dispose of their 
services, and co nsequen tly they lack purchasing power. A 
glut in the market always means under-consumption. This 
is one of the saj[and curious features of the life of the mod- 
ern socio-economic organism. Iti4i:irts do notjilways fulfill 
their functions harmoniously; frequently parts are partially 
incapacitated and the body is in a diseased condition. '^' 

Sorae have supposed that luxury and extravagance are 
abl e to remedy glnij^ in the markets, but tliisis impossible. 
O n the co ntrary, they freq uently briu'j^ about a diseased 
condition of_ in<lustrial society whieh leads to gluts. At 
any rate, if any one has an excess of purchasing power, it 
is always easy to transfer it to^some person or institution 
capable of tising it for the benetit of humanity. 

Other Departments of Political Economy. — pro- 
duction taken in_ its widest sense includes every thing in 
political economy except consumptjoti^of ^gQodSi. The ac- 
qnisith m and cm j)loymen t of goods embraces the entire eco- 
nomic activity of man. " Transfers of goods," dealing with 



150 . AN INTRODUCTION TO POLITICAL ECONOMY. 

the circulation of goods, and the agencies through which 
this is effected, is one part of production. Distribution is 
in early stages of society nearly identical with production, 
and is so to some considerable extent to-day. What a man 
produces constitutes in the earliest stages of economic de- 
velopment his income. A man catches two fishes in a da}"-, 
and these are his income. It has been said that even in 
modern society there are no separate organs of the economia 
body concerned with distribution. Distribution may in the 
raain^ perhaps, be said to follow naturally from the existing 
system of production. Yet t his is not wholly so. Law g 
and institutions modify more or less consciously the distri^ 
bution of wealth. This is the a.vowed purpose of the French 
law of inheritance, which divides the bulk of a father's 
property equally among his children, regardless of his 
wishes in the matter. Moreover, as., prpduc tion is at present 
carried on under our laws of property, many people who 
by their own efforts contribute nothing whatever to_prod ac- 
tion enjoy a large amount of what is produced. 

I 'hu{nce_ treats of the^ acquisition and employment of 
means by governments, but there are many peculiarities con- 
cerning the housekeeping of governments which render it 
advisable to treat this subject by itself, and not to distribute 
the matter among other main parts of political economy. We 
have, therefore, adhered to the traditional distribution of the 
matter into main parts for convenience, admitting that it is 
not strictly logical to make the divisions, production, distribu- 
tion, transfers, consumption, and finance, as if these were 
equal in rank. It would be more logical, perhaps, to place 
transfers and distribution under production as sub-heads, 
but it would be a more ciunbrous arrangement, and strict 
losic is sacrificed to convenience. 



On the productivity of commerce, and the erroneous opin- 
ion that agriculture alone is productive, read chapter iv in 
Ely's Problems of To-day. 



CHAPTER 11. 

MOTIVES OF ECONOMIC ACTIVITY. 

"Wants. — It may be said, in a word, that tlie wjjQta_u.f man 
8U])|)ly his economic motives. Tliis is true, but it is too 
vague to be serviceable. Man's wants are of .-ill kinds. 
They include pleasurable exercise of our faculties, the disci- 
pline of toil, the physical means for the support of one's 
own life, the physical means for the maintenance of the 
existence of others, love, friendshij), religion, etc., etc. Xo 
man except a foolish or insane ])erson engages in economic 
acth ity excej^t to satisfy some kind of want. There is a 
purp ose in the action of rational men. 

We may speak about one's own individual wants, of the 
Avants of other individuals, and of the wants of Slates. All 
of tjiese orders of wants supply motives. 

Self -interest is one econotnic motive, and certainly a most 
pcnvt rfiil (inc. It is no^t exclusive, and in itself it cannot ex- 
plain th(.' icdHomic life of nations, as has been already seen. 
Self-interest aetsjiffereiitly under different circumstances. 
It will in India, perhaps, lead a man to do one thing, and in 
England quite another thing. But what do we mean by 
self-interest? Assuredly not always the same thing. Self- 
interest ainong savages may include simply an individual. 
It is taken for granted with us that a man's sejl-jnterest in- 
cludes. \vi|e and children. "When we say a man is prompted 
in the business world by self-interest we assume that his 
activity is directed to the benefit of his own inmiediate 
family at least. Self-interest thus includes a narrow circle 
when reduced to its lowest terms, and this shows itself not 
merely in using money earned, but in productive processes; 
sometimes even unju stly, as w hen relationship uuilul^atfecU 



152 AN INTRODUCTION TO POLITICAL ECONOMY. 

salarigtS, number of holidays, and other privileges. But the 
circle of se[f -interest is caj)able of indefinite expansion until 
it embraces a town, a county, a State, a nation. If self- 
interest becomes so broad in its scope as to^identify self with 
humanity a s now with one's famij}', we have Christian_al- 
tiniism. What^ is wanied is to extend the circle of self- 
interest. 

Self-interest is not a bad thing. It is a good stimulus 
when^it assumes its proper form. Self-interest is compatible., 
with a generous consideration for the material welfare ot. 
others. I^_ani one of mankind, and my love for humanity 
includes myself. If I^ neglect the care and development 
of myself I injure humanity. The humanitarian spirit in- 
cludes both self-love and love of one's fellows. But self-in _- 
terest may become diseased, and then, placing self above 
otliers and neglecting others, it becomes selfishness, which a 
moral teacher has called the true_soiirce of all sin. 

Patriotism is a nK)tive, and a powerful one, especially in 
times of great awakening of national spirit. 

E,eligioii renders service a duty, and pronounces the man 
who lives in this world without rendering himself personally 
useful in the work of mankind a thief and a robber. It is 
a powjarful economic motive, particularly in the highes^ 
natures. 

Self-interest, Brotherly Love, Public Spirit. — Pro- 
fessor W^g'^'^^'s of Berlin, has from a somewhat different 
stand-point spoken of three principles in national economic 
life, to each of Avhich he ascribes a special motive. There is 
the principle of individual and private enterprise, in which 
self-interest is dominant ; there is the principle of public 
activity, the social principle as opposed to the individual prin- 
ciple of private business. This second principle corrects, 
modifies, and rounds out the first. Private and public ac- 
tivity supplement each other. We have finally the third 
principle, that of brotherly love, the caritative principle, 
filling in gaps, supplying omissions, mitigating the severities 
of individual and of public action, Self-interest,__ brotherly 



MOTIVES OF ECONOMIC ACTIVITY. 153 

love, and pM blic sp irit are, then, three motives. of economic 
act_ivity, but they arc not ex clusive one of the other. '^I'liey 
])ass gradually over into one another and are olten indis- 
tinguishable. 

Desirable and Undesirable Wants. — We may classif y 
wants, furtiier, ii^U) de sirab le wants and u ndesirab le w^ants. 
Wants sat islK'd by those thiii < ;s w hich serye as a basis f<jr 
the full and harmonious development of our faculties are de- 
sinible wants ; w ants satisfi ed by other material things 
>vhieh are n ot positivel y helpful or_are_positively injurious arc 
a ndesirable wants. Wholesome food, comfortable clothing, 
commodious shelter, books, musical instruments, tine works 
of art, are all things which minister to desirable wants. 

Luxury. — Luxuries are things wliicli minister to such un- 
desi^iable wants as love of display, vanity, or scltish desire to 
exah one's self above one's fellows, ami thus to produce sep- 
aration. We generally think of luxuries as costly things, 
but a wanton and luxurious expenditure for dress may in a 
vain woman's life-time amount to far less than the perfectly 
justifiable expenditures of her neighbor to promote in her- 
self, lier family, and others an appreciation and love of the 
beautiful. IVopiniinnality i_s one element in determining 
whether a thing is a luxury or not. If_the i^eal gaiiLto_oniis 
s£lf correspouds to hi- outlay it cannot be called a luxury. 
On e tes t is to ask tliis question: " Would^ I myself, if noi-- 
mally constituted, ob^yiug ethical principles, be willing to. 
undergo the toil and sacrifice that article has cost for the 
pleasure it affords?" The answe r must be_ in the iiegative 
in_the case, of articles like Be lgian han d-made lace, which 
is the product of long, weary toil of pnorly paid girls who 
often lose their eyesight in this work. An economist* has 
defined luxury thus: '^ Luxury is vvba tej^r contributes i 
dbicfly to enjoyment rather than to a better training of our' 
'.powers. Luxury is defensible oidy in so far as it does not 
hinder the development of a better manhood in us and in all 
those whom we could influence." 

* Professor E. W. Bemis, of Vanderbilt Uuivorsity. 



154 AN INTRODUCTION TO POLITICAL ECONOMY. 

Public and Private Luxury, — Proportionality will show 
that expenditures bj the public aiid fQr_the jpubLic aiid bj, 
private individuals for the public are, justifiable w hich would 
be altogether unjustitiable for a private party. W^hajt is lux- 
ury for a private person is not at all luxury for the public. 
Grand public buildings, which lift up and inspire the peo- 
ple, magnificent art galleries, grand universities, magnificent 
common schools and academies are excellent things, and the 
toil and sacrifice which they require are well repaid in the 
returns made in the higher and better life f>f the people. 
Wants to which, llieae minister are among the best national 
wants. It is only in a morally diseased condition of a people's 
consciences that lavish outlays will be approved for private 
individuals and parsimony prescribed for the public. 

A defense is sometimes oflTered for private luxury which is 
so manifestly weak that it scarcely deserves attention. It 
is_said, " It_^ives opportunity to work." The same expeiidi- 
ture f or humani ty would obviously give an equal opportunity 
to work. 

Moralists, philosophers, statesmen, and religious teachers 
have aU. united to condemn luxury, and to it has very gen- 
erally been attnbuted the downfall of states. Among t hose 
wjio have spoken strongly on luxury we may mention Plato 
and Aiis|ptle, all the Church fathers, and the greatest of the 
mediaeval philosophers, Thomas Aquinas, the Scotch philos- 
opher Adam Ferguson, of the last century, and M. deJLave- 
leye in our own. There can be no Jdnd of doubt as to the 
teaching of Christianity on this subject. We may di vide .) 
those things which we want into necessaries, conifbrts, con- 
veniences, and luxuries. We satisfy our o\vn wants in the 
order named. Manifestly we are not even making an effort 
to love our neighbors as ourselves wlien we indijlge in luxuries 
so long as they want the necessaries, comforts, or even^con- 
veniences of life. 

Among the most pernicious things which satisfy undesir- 
able wants may be mentioned tobacco, opium, intoxicating 
beverages. The best that can be claimed for even a moderate 



MOTIVES OF hX'OSOMIC ACTIVITY. 165 

use of tlicsc apart from medicinal purposes is that they rlo 
no positive harm to the iiulividiiars j)hysieal well-ljeing, and 
that they atlbrd at least a temporary solace, and tend to 
sociability. The following figures will show the onormous 
amount annually expended for these commodities, and will 
suggest the question, even suppose no excess or otherwise 
injurious consequence, could not all these resources be better 
employed ? 

The total amount of distilled spirits consumed in the 
Uniteil States injhe year 1887 was 71,064,733 gal lons. The 
consumption of malt liquors was 717,74H,854 {;;allons, and the 
consumption of \yine s was 32^618,290 gallons. Of course we 
cannot tell just how much was paid by the consumers fur this 
immense Hood of intoxicants, which, if poured together, would 
fill a c hann el twenty feet in depth, twenty feet in width, and 
forty-six iniU- I'Hig, Imi ni:iiiy estimates have been made 
both by those who defend and tliose wlio o])])ose the use of 
liquors. They place the cost at froin ^700,000,000 to 81,000,- 
OOOfO QO. If Ave deduct the liquors which are used in the arts, 
and for other purposes besides that of drinking, it is probable 
that the first estimate, namely, seven bundled millions of 
dollars, is not too high a figure to represent the amount of 
money that is yearly paid for intoxicants which are used as 
beverages. This is equal to an exjjendiu^ire of twelve dollais 
for ( \n y num, woman, and child in our country. 

In comparing the amounts expended for liquors with what 
our people expend for other purposes there have been many 
misleading estimates made which in the long run can be of 
no real service to the cause of temperance. For instance, 
some persons in comparing the cost of drinks with the cost 
of all the food consumed in the United States have placed 
the former at the not extravagant amount of about nine 
hundred millions of dollars, but the cost of food t hey find to 
be only n ine hundred and sixty-three millions of dollars. 
At this estimate the cost of licpiMis would be lii'teen dollars 
]>er capita, while the cost of food would be only sixteen 
dollars lor every man, woman, and child in the United 



156 Aif INTRODUCTION TO POLITICAL ECONOMY. 

States. There is an important difference overlooked, namely, 
that nearly all of the liquor consumed corae;s on the market 
and is there estimated in dLoilarj . and., cents, while perhaps 
le ss t han one fourth the food consumed is broiight_under the 
conditions necessary for a money valuation. 

It is important to note that if the seven hundred million 
dollars now spent for grain in the form of liquors were ex- 
pended for food and other farm products to satisfy the ra- 
tional wants of the thousands of families who are rendered 
destitute by intemperance it would purchase at least seven 
times as much grain in the form of flour as it does in that of 
liquor; because it is true with regard to liquors, as with all 
luxuries, that the amount of raw material used in their pro- 
duction is far less, compared with their cost to the consumers, 
than it is in any of the other products that satisfy human 
wants. Thus we can see that those farmers who think that 
t he li quor industr}'- creates a demand for their commodities, 
and those brewers and distillers who endeavor to instill this 
b_elief, are both deceived and deceivers. How much better 
it would be if farmers could secure high prices for their 
grain and other products by ministering to those rational 
and higher wants which strenarthen human nature and enable 
the consumers to produce in turn a greater abundance of 
wealth, rather than by satisfying the demands of base appe-. 
titesthat degrade men and lessen the community's wealth- 
producing power! It is, of course, obvious that if men spend 
less for liquors, tobacco, opium, and the like, they will have 
so much more to spend for other things, and the „opjK)r- 
tunities for employment will not be at all lessened. On 
the contrary, as other expenditures are more likely to be 
pixiductive, opportunities for employment will inevitably be 
multiplied. 

The in direct C jgat of liquors to the community at large is 
far more tremendous and impossible of estimation than the 
direct cost. We all have to pay for the support of the armies 
of policemen, detectives, lawyers, judges, whose chief occu- 
pation grows from the use of intoxicants ; f or^risons,_|)^i- 



MOTIVES OF ECONOMIC ACTIVWY. 157 

tentiarie", insane-asylums, alms-houses, fifty to eighty per 
cent, of whose occui)ants arc tlie victims, direct or indirect, 
of intemperance ; while all share in the loss of industrial 
pqv\-er that c'()ines frtnn woaketied constitutions, dizzy heads, . 
and_extravag:uK'e. Many books and articles have bt'cn writ- 
ten and many puldio speeches have been m.idu upon these 
manifold and visible evils. Those w ho suffer the iiKist from 
drink are the working classes, and they are also llm^c who 
cannot conceal their excesses and misfortunes. But it is a 
mistake to suppose that working-men alone furnish the 
drunkards, or that there are not great numbers of earnest 
temperance men among tiiem. The rich have their social 
clubs where intoxicants perform their work as heinously as 
they (1.) in the gutters, but less publicly. The only social 
men's clubs in the United States without a bar attached are, 
so far as the writer has observed, working men's clubs. 
These appear to be generally devoid of that institution. 
If there is a fashionable club-house in the United States 
where intoxicating beverages are not soM the writer has 
yet to discover it.* While intemperance is a monstrous 
evil, and cannot be too earnestly fdught against, we should 
not fail to see that it is at the same time both an effect 
and a cause. Farmers are proverbially a temperate class of 
people, and when we look for tlie worst effects of intem- 
perance we go to our crowded cities and great industrial 
centers.f But here we find ind;istrial and social conditions 
which force us to believe that, until they are remedied, we 
can look for no lasting growth of temperance or strengthen- 
ing of character: on the one side, i mmense w ealth, with its 

* Since writing the above the aulhor is told that the W intlirop Ch ib, of 
Siiniigtield, Mass., wliich Ikih elegant rooms and appointments, and iuchides 
most of tlie leading business and professional men of the city, lias no bar, 
and no liquor of any kind is sold or used in its rooms. The opinion is ex- 
pressed that tlicre are other snch. 

f A friend writes to the anthor as follows: "My observation is that ia 
the Eastern States farmers in regions remote from centers of social activity 
are much addicted to drink. Tiie cideji-brandv distillery has long been the 
curse of Litchfield County, Connecticut." 



158 AJSf INTRODUCTION TO POLITICAL ECONOM'i 

temptations of pride and luxury ; on jthe^ other, crowde* 
tenements, hot and noxious in summer, alvvays loathsoraeand 
repulsive, occupied by those who^do not know whether they 
will find work that day or not, Their condition is often the 
effect of their former intemperate habits, and in turn it 
drives them and their children into further depths of inebri- 
ety. An important r eason for the craving for intoxicants, 

as is shown by one of the foremost of American physiolo- 
gists, is the lack of sufficient food or of a sufficient variety 
o|_whole.soine food, and especially poorly cooked food. These 
and many other facts with regard to the economic condi- 
tions of our day admonish us that the thoughtful temper- 
ance adiofiate must _einbrax;e_in his efforts both temperance 
and industrial reforms. 

Another serious waste of wealth results from the use of 
t obac co. In 18^86 there were 7_43,460 acres of land devoted 
to the production of this weed, and the quantity of cigars, 
cigarettes, and cheroots consumed by the American people in 
the year 1 8.80 reached the enormous number of 2^821,776,282, 
representing an outlay on the part of consumers of at least 
$140,000,000. In the year 1888 the number probably in- 
creased tqover three billions, or more th an fifty for every 
human being in the country. The tobacco that was con- 
sumed by chewing and in the_Joi:inL,<)f.. snuff was, in . 1880 , 
136,275,835 pounds, nt a cost to the consumers probably of 
170,000,000. The indirect loss resulting from the use of 
tobacco is not so great, nor are its effects upon the con- 
sumers so disastrous as is the case in the consumption of 
liquors, but it is at least doubtful whether the enormous out- 
lay shown by the above figures is com]Densated by any in- 
creased happiness of the people. 

The opium habit is said to be rapidly growing in America. 
Its effects are even worse than those of alcoholic intemper- 
ance, destroying both the mind and body, and transforming 
its victims from productive members of the community into 
a public burden. 

There are other objects of foolish and harmful consumpr 



MOTIVES OF ECONOMIC ACTIVITV. 159 

tion. How ulicu is the usefulness of women destroyed or 
lessened by extravagant disitlay of jewelry and precious 
stones which minister only to vanity and envy ! 



Those who have aceess to a lile of the Pojmhir Science 
}fo)ithly will do well to read an article on " Morals of Lux- 
ury " which appeared in ihat magazine for Mareii, 1881, by 
M. de Laveleye. Re:id also his remarks on luxury in his 
J^lenicnts of PoUticitl I-Jconomtj, Book IV chapter ii, § 1. A 
French author, INI. liaudrillart, has written a iiisiory of lux- 
ury in lour volumes — Jlistoire du Luxe, Prir'e ct Public. 
8idgwick's llistori/ of Ethics, chai)ter iii, may be consulted 
on the ideas of the early Church on luxury. The lirst 
volume of Roscher's Political Economy has been translated 
into English — divided into two volumes in the translation — 
and chapter ii of Book II treats of luxury, giving an liistor- 
ieal sketch with many valuable references. It will be observed 
that various definitions of luxury have been given. Of course 
it can be so defined as to include expenditures that are praise- 
worth yo 



CHAPTER III. 

THE FACTORS OP PRODUCTION. 

There are three factors of production, of wliicli two, nature 
and labor, are piiiuary, and the third, capital, is secondary. 
We will consider these bricHy in the order named. 

1. Nature, — The part played by nature in production has 
already been discussed at some length, in Part I of this book, 
under the head of territory as one of the two main factors 
which make up the national economy, the other being the 
factor man. We include under nature all natural forces used, 
as the wind, the movement of water, attraction of gravitation, 
cohesion, etc., etc. Many of these things furnished by nature 
are free goods and not economic goods. Nature, economically 
considered, is generally called simply land, because, of what 
belongs to external nature, it is with land that we have prin- 
cipally to do in political economy. It must, however, Ije ob- 
served that land has a very broad meaning, and includes what 
is below the surface of the earth, and u ater so far as it is 
appropriated by private parties; also in some respects the 
entire surface of the earth. This factor is in early stages 
generally common property, but in later stages of life it has 
been private property, and a return for its use has been 
secured by private individuals, or, in cases, by the public 
when owned by the public and leased to private parties. 
The return whjch land in itself, 'apart from capital or labolP, 
yields is called rent. This is pure rent, oi* economic rent, 
which is different from rent as ordinarily understood, for 
rent rn~popular usage, includes recomp.ense for the other fac- 
tors of jM'oduction. Puje rent can best be observed in cities, 
where it is the annual value of lots on which buildings 
s tand. A large portion of the land of Baltimore. Piiiladel- 



THE FACTORS OF FRODUCTIOX. Hi 1 

pliin, and London is owned by men wlio do not own tlie 
liuiMiiij^s and otlu-r iniprox cniciits l»ut ix-coivc from owners 
of iniiirovcnii'nls ;in ;iiiiiual iciit. 

La ml i Tudi'is tliiuc soivici's to j)roduction : (i rst, it gives 
:i " st amli ni; ]^Iaee." It is >oMiet)iinLJ on wliieli we can 
rest and move about wliiU' cuiKliiclint;- productive proeessfs. 
Mere s pace in itself is often extrcMne]^;_iiaiuilble, as can be 
seen in tlie ease of c ity real estate ; and as j)o])id,iti(in is lap- 
idly growing, and as a continually increasing proportiuu of 
the population dwells in cities, this service is constantly be- 
coming more important, and the return in rent will probably 
augment rapidly for a long time to lonie. Second, land con- 
tains the element needed by j)lant-life, and thus serves agri- 
culture. We call this property of the soil i ts fer tility. 
Third, land contains natural products below the surface of 
the soil, like coal, natural gas, petroleum, iron, gold, silver, 
and other metals. Tluse are the natural treasures of the 
earth. Man does not create them nor give direction to nature 
in their formation. It has seem ed to some nations unfair 
that tliese natural treasures should become the pro}»erty of 
in dividu als, and they have treated them as a common heritage, 
exacting a rent or royalty for the o])portunity to appropriate 
them. This is perhaps generally the case on the Continent of 
Europe, bi it^Eiigl ish law, whh its inclination to the exaggera- 
tion, of private jights, established tlie principle that he who 
ow ns th e surface owns to the center of the earth, and upward, 
to the sky. It is a peculiarity of land that its quantity can- 
not be increased appreciably, and thus it is spoken of as a 
njitural monopoly. This seems hardly accurate. It is a lim- 
ited factor, but in the ownership or management of land 
there is no inevitable tendency to monopoly. 

2. Labor . — Labor is the s econd of the two primary things 
i n production . It is service suj^plied by h uman beings, and 
is different from other good s because it is always connected 
yith .1 personality. 

Moral and intellectual qualities increase its productive- 
ncsa . Tcmi pe rance, trustworthiness, skill, alertness, quick 



162 AX INTRODUCTION TO POLITICAL ECONOMY. 

perception, a comprehensive mental grasp, all these and other 
good qualities belonging to the soul of man are of cliief 
iniportance in man. Man's mere p hysical strength in itself 
is a poor thing, being surpassed by that of lower animals, as 
oxen and horses ; but nianjs far more productive, and e ven 
as a slave sold for far more than the lower animals. The 
economic value of intellectual training is generally not suffi- 
ciently appreciated. It has been ascertained that, with no 
noteworthy exceptions the higher in any part of the United 
States the /)er capita expenditure foi' schools the^Jngher is 
the average of wages, and tht' larger, consequently, the j^ro- 
duction of wealth. 

Growth of Population. — The supply of labor is in- 
creased witli the growth of population, and to this there it, 
no limit save the means of subsistence. Fear has been ex- 
pressed that the growth of population may outrun tb(v 
means of subsistence. A tlieory of j)opulation has been ad- 
vanced by the English economist, Malthus, v>'hich is called 
Malthusianism. It is simply this: population tends to jjj- 
crease as 2, 4, 8, 16, 32, etc., or in geometrical progression, 
while the best we can hope is that food supply will increase 
as 2, 4, 6, 8, 10, etc., or in arithmetic-al ))i-ogression ; coin 
sequently if there were no check to the natural increase 
of population men would in a short time starve to death. 
But there are checks to the growth of population, and these 
are of two kinds; namely, Pi^itive and_prfi3;.eiltive. P ositiv e 
checks are those which keep down population b y killm g^pff 
people, like plagues, pestilence, inte^niperaiice, yice, ciiiues 
wajf. Preventive checks are those which keep down popula- 
tion by preventing the birth of an undue number of people, 
as prudence in contracting marriage or ahstinence from mar- 
riage. These are checks^ oj^ a^ moral character. Men who 
are conscientious will not marry until they feel that they 
will probably be able to support a wife and bring up 
children worthily. As population becomes denser this 
postpones marriage, and as the age of marriage increases 
the average number of births will decrease. Innumeiable 



THE FACTOR.^ OF PRODUrrroy. ]ff3 

pusfoms oxist all over iho world, especially in older countries, 
postponing tile age of inarri;ige, and these tend to prevent 
an undue growth of population. The only piaelieal con- 
clusion which JNTalthus drew from his doctrine was this : jetj 
no one marry until lie has a reasonable prospect that he willj 
be able to suj)pt)rt and bring up a family of the average 
size. He wished t q^iutcnsify'the feeling of parental respon-W^ 
sibility. 

At tlie present time nothing more in the way of restraint 
to population seems necessary in the L'^nited >St.ites than to 
keep from our sliores the lowest classes of foreigners and to 
exercise in contracting marriage tliat ])rudenoe which has 
long characterized the really best classes of American society. 
Nevertheless, it must be admitted that by no Imman possi- 
bility can j)opulation long continue to increase in the United 
States as it has done in the ])ast, for in a comparatively short 
period there would not be standing-room on the sui-face of 
the earth for all the people. It is said that our population is 
now doubHng in less than twenty-five years. If it continues 
to increase at tliis rate we have a geotnetrical progession. Let 
us suppose it is ninv sixty millions and that it doubles once 
in twenty-five years. Two hundred and fifty years is a short 
period in tlie world's liistory, but our population at the expi- 
ration of that period would ejceed sixty thousand millions of 
people, which is forty times the estimated population of the 
globe at present. 

How terrible a thing a geometrical progression is has been 
shown more clearly still. Let us suppose that there arc only- 
two people on the face of the earth, and that population 
doubles only^^nce in fifty years. At the expiration of three 
t housa nd years the Avhole surface of the earth, land and sea, 
would be covered with peoi)le piled one on top of the other 
eight hundred deep.* 

]Manifestly the present rapid rate of increase of population 
cannot continue forever ; yet it does not cause great uneasi- 
ness. It has been urged by some writers that as mati de- 
* Marshall's 3y>n'ymiaf "i/ Indu'fry, chapter v. 



164 AN INTRODUCTION TO POLITICAL ECONOMY. 

velops more highly his fecundity will decrease and the growth 
of population will become slower. Others think that pru- 
dential and moral restraints will be ample to prevent an 
undue increase of population. 

The chief cause for anxiety is this : For some reason or 
another it seems to be more difficult for a large population 
to live peaceably together under present industi-ial conditions 
than for a small one, and there is ground for the anticipation 
that the growth of population will test the worthiness of our 
civilization to endure, as other causes have tested older civili- 
zations. We may be sure that if there is a moral governor 
of the universe modern nations, like ancient nations, will be 
called upon to show their fitness to survive. Every time the 
sun rises it looks upon a larger population than ever before 
in the United States, and consequently upon a more complex 
industrial civilization. A force mighty, and it almost seems 
irresistible, is at work, day and night, day and night, never 
ceasing, forcing upon us more nnd more serious social ])rob- 
lems. These problems can never be solved by the police- 
man's club or the soldier's bullet, for this quiet on-moving 
force laughs such repression to scorn. Only righteousness 
can solve them, for only in righteousness is there power to 
enable us to adjust ourselves to our new environment. 

3. Capi tal. — Capital is the third factor in production. 
It is not one of the two first things in political economy, but 
it is a combination of these two. Land and labor together 
produce capital, just as oxygen and hydrogen combine and 
produce water. Capital is neither land nor labor, but,_re- 
sulting from the two, it is a new thing and has properties j:)f 
I its own. (tTcipital is every product laid hj Aohich maijjie 
\ \used for j^^i^'poses of further production. There are tjyo ele- 
ments in this conception : first, that of stored-up goods, and 
second, that of a possibility of use in the future. 

It is often said that capital is the result of saving, but this 
is misleading. Saving is merely a negative act and cannot 
produce any positive result. We must have something to 
save, that is, we must first ^oduce,. and then over and above 



THE FACTORS OF PRODUCTION. 165 

the necessities of lif e there must he .1 surplus ; if this is laid 
by or sa ved it becomes ca pital. 

T he aid which capital r eiiK is to pii>duction^is e ssent ial to 
anv [)r()duction of economic goods save the most primitive 
and limited. Capit al means food, shelter, houses, buildings, 
t ools, m achinery, steamships, railroads, telegraphs, telephones, 
manufacturing and commercial establishments. Of those 
things which man needs to sustain life it means a suiplus, 
and this renders possible an effective combination and or- 
ganization of the productive factors. Nothing is more dis- 
astrous than t o be obliged to work to- day for the food of 
to-day . When this is necessary no systematic activity is 
possible, but we must seize the first opportunity which offers 
to get food, however miserable. Capi tal accumulated means 
that we can postpone consumption, working to-day lor the 
food sup[ily of sonic future day. We can thus organize 
productive forces, we can survey the field of industry and 
secure the best place to apply these forces, AVc can put in 
our seed-corn and wait until it produces sixty or a hundred 
fold instead of wandering through the woods lor uncertain 
game, which when taken is slaughtered, and losing its power 
of increase renders it no whit easier to produce to-morrow's 
supplies. As capital is a productive factor it claims a part 
of th e product, and this part is cillcd interest. Often we 
speak of profits, hut when profits inclmlc more than interest 
they embrace something else besides the simple return on 
capit al. 

"social and Individual Capital. — "We must alwnys dis- 
linguish between what is capital to the individual and what 
is capital to society; that is, between social and individual 
capital. Only socio-economic goods, or material goods and 
accumulated personal products of past toil, can be regai'ded 
as social capital. ■ I>qnds, mortj^ages, and all evidences of in- 
debtedness, are no part of social ca[)ital, but they are indi- 
vidual cai)ital. Fraiichises are no part of social capital ; 
they are sijnply permission to make use of existing social 
capital, or to create social cn|)itil. The capital of society is 



-f 



166 AN INTRODUCTIOK TO POLITICAL ECONOMY. 

not diminished when_ the value of corporate property, like 
railroads, telegraphs, telephones, and the like, is reduced , Id 
a fair valuation for the actual social capital investpd. It 
may or may not be morally right, it may or may not be le- 
gally possible, to equalize in a concrete case social and indi- 
vidual capital ; only the particular circumstances surround- 
ing that case can determine. It is now simply desired to 
bring out clearly the distinction. 

Fixed and Circulating Capital. — A co mmon division 
of capital is into fixed and circulating. Cir culating capita l 
is capital which can_be used only once, or in one round of 
operations. Its entire value passes over into the product. 
Fixed capital, on the other hand, is capital which lasts for a 
succession of operations, and only a part of the value of 
which passes over into the product with each use. Coal used 
in a furnace is an example of cii-culating capital ; the coal- 
cart in which the coal is hauled is fixed capital. 

Capital Saved by being Consumed. — Capital, although 
saved products, is consumed. When_food is used for_product- 
ive purposes it is consumed as truly as when used for present 
enjoyment. Let us sujjpose I can raise a certain amount of 
produce on my farm. I raise necessaries and also delicacies, 
and consume all I raise. Let us suppose now I raise only nec- 
essaries, and since I raise twice as much foorl as I can use I give 
half of my produce to a man who constructs a barn for me. I 
have accumulated capital, but the consumption of food has not 
been diminished thereby. Obvious as this is, it is not un- 
derstood so generally as it should be. There is a wide-spread 
impression that it is better for a man to spend his substance 
in riotous living than to save it; but the man who builds 
houses makes as large purchases as he who expends the 
same sum in feasts, and society is richer because of the latter 
consumption ; the houses still remain. 

Increase of Capital. — Capital is a growth, and, as a re- 
turn is exacted for capital, capital begets capital, as it were. 
This makos it infinitely easier for a man who has capital to 
accumtilate it than for a man who has no capital. So inti- 



THE FACTORS OF PRODUCTION. 167 

mately is pioseiit capiliil coniiectod with past caiiital (liat it 
lias liCLMi said tliat there is not a nail in all I<^iiglaii<l which 
could not be traced back over eight hundred years to savings 
made before the Norman Conquest. 



On Population read chapter x of Book I of MilTs Politlcdl 
JEcononij/, and chapter v of Book I of Marshall's A'roiiomics 
of Industri/. Chapter xii of Part VI of Herbert Spencer's 
Principles of Biology may be consulted with advantage. On 
wasteful expenditure and saving see Ely's Problems of To- 
dai/y chapter xv. 
8 



CHAPTER IV. 

ORGANIZATION OF THE PRODUCTIVE FACTORS. 

Early Simplicity.— The organization of the factors of 
production, simple at first, becomes on the whole continually 
more complex with the development of industrial civilization. 
Differentiation accompanies development. The old house- 
hold economy is organized in such a manner that the exist- 
ence of tliree separate factors in production is scarcely per- 
ceived. The same man is owner of land, labor, and cnpital, 
and all the products flowing into his hand are distributed by 
him among those who participate in production according to 
the manner which he deems proper. When production is 
carried on by a village community we have collective own- 
ership of the instruments, management by a common author- 
ity, and a division of products according to regulations based 
on custom. The products are not divided into parts corre- 
sponding to the factors of production, but the same man 
receives in every case wages, interest, rent, and profits. It 
is, in fact, only recently, with a new organization of indus- 
try separating these factors and assigning them to different 
industrial classes, that the factors of production have become 
commonly recognized as distinct either in production or in 
the distribution of products. Even to-day this separation is 
in a large portion of the industrial field not effected, and, con- 
sequently, there is not there that antagonism between classes 
elsewhere observed. The Araei-ican farmer in our Northern 
States is usually land-owner, capitalist, laborer, and manager, 
and receives rent, interest, wages, and profits, and in the 
total product cannot distinguish one from the other. 

The G-llilds. — The old guild organization of industry 
and commerce united the factors of production in the same 



1 



ORGAXIZA Tiny OF Till-: PRODUCTIVE FACTOR.'^. 169 

man. The guiltl of the Middle Ages embraced apprentice, 
journeyman, and master, and regulated industry and com- 
merce under governmental sujjervision. The master man- 
aged the business, owned the capital, and worked with his 
own hands, lie received the entire product of the business 
after supporting the apprentices and paying his journeymen. 
Apprentices and journeynien were, it is true, laborers, and 
conrtii'ts about wages arose not infrequently, although for long 
pei'iods harmony prevailed, particularly during the best days 
of the guilds. There was a partial 8ej)aration of labor from 
other factors, it is true, but not comi)lete, and the man who 
supjilied labor looked forward not Avithout reason to the time 
■when he should become capitalist, employer, and manager. 
This advance was a regular part of the guild system. 

Growth of Complexity. — The present century has 
witnessed a great change in the organization of the produc- 
tive factors, especially in commerce, manufactures, and trans- 
portation. We have a large class that furnishes labor only, 
another class that furnishes land and capital, and a third 
class that organizes and manages the undertaking. A mod- 
ern railway corporation serves as a good illustration. The 
stock and bondholders furnish capital on which they receive 
interest; the stockholders carry on the business through 
managers, and for this service they hope to receive a sur- 
pjjis^-above interest, called profits; labor is remunerated by 
Avages and by salaries, Avages being the remuneration of 
suboi'dinates and salaries of officials. Land is supplied by 
stock and bond holders, a part of their capital being ex- 
changed for land, and consequently Ave have rent also, al- 
though not usually appearing as a separate factor. Yet land 
may appear as a separate factor when land is leased. No 
doubt railways in Baltimore and Philadelphia pay ground 
rents, annual returns for land itself, to those who do not 
own the improvements. We observe then all these various 
classes, and perceive that the ])roduct or revenues of the un- 
dertaking are divided into a corresponding number of por- 
tions. It can readily be understood how controversy re- 



/ 70 AN INTROD UCTION TO POLITICAL ECONOMY. 

specting portions allotted to the different classes can arise. 
It is said that the business community is always in debt, be- 
cause it carries on business with more or less borrowed 
money. The owner of the business enterprise is an organ- 
izer and manager, and receives wages of superintendence, a 
salary which he pays himself ; he receives a return for risk, 
he pays interest and receives interest on any money he has 
invested, he pays wages and rent. 

The Entrepreneur. — The one who manages business for 
himself was formerly called an undertaker or an adventurer, 
but the first word has been appropriated by one small class 
of business men and the latter has acquired a new meaning, 
carrying with it the implication of rashness and even of dis- 
honesty. We have consequently been obliged to resort to 
the French language for a word to designate the person who 
organizes and directs the productive factors, and we call such 
a one an entrepreneur. 

The function of the entrepreneur has become one of the 
most important in modern economic society. He has been 
well called a captain of industry, for he commands the indus- 
trial forces, and upon him more than anyone else rests the re- 
sponsibility for success or failure. A business which has 
achieved magnificent success often becomes bankrupt when, 
owing to death or other cause, an unfortunate change in the 
entrepreneur is made. The prosperity of an entire town has 
sometimes been observed to depend upon half a dozen 
shrewd captains of industry. It may be said, then, that the 
large reward these often receive is only a legitimate return 
for splendid social services. Such is the case, provided this 
reward is gained honestly and without oppression. Some- 
times gains are partially legitimate and partially illegitimate. 
It is this mixture, observed by all in notorious cases, which 
has probably more than any thing else led to indiscriminate 
attacks on the profits of the captains of industry. It must 
be added that the fact that a man has gained legitimately 
as a return for services an enormous fortune does not mor- 
ally entitle him to use it as he pleases, for morally a man 



ORGAMZATWX OF THE riiOlJUCTl V h l-'ACTOUS IJI 

is obliged to use every tiling lie has, himself iiieludeil, I'or the 
benelit of humanity, and if he has great powers to gain 
wealth this hut measures the extent of the moral though not 
of the legal obligation to soeiety. 

The productivity of industry depends largely upon the 
harmonious development of all the factors. Sometimes labor 
is ^peeially needed, sometimes capital, sometimes land; most 
frequently what is needed al)Ove every thing else is a better 
organization of productive factors. Organization is defect- 
ive, and talent for organization and management is unfortu- 
nately rare. 
^^ The Division of Products.— The more efficient all the 
factors the greater the product to divide; but the share of 
each factor will depend upon the industrial strength of the 
class which su})plies it as comj)ared with the industrial 
strength of other classes. Ojie_gj:eat element in strengtli is 
what we may call " staying-powei\" The one who can wait 
while the necessities of the other press him makes the best 
terms in the division. It is on this account that labor organ- 
izaiions spring up. Capital is necessarily united under one 
management, and labor seeks to put itself under one manage- 
ment that it may gain like staying-power. An important 
element in determining staying-power, and thus industrial 
strength, is tlie relative rate of increase of the factors. If 
labor supply is increasing with relatively greater rapidity 
than capital it will be obliged to seek capital, and it cannot 
wait to be sought. Labor organization cannot in itself cor- 
rect this difficulty, because it docs not directly increase capi- 
tal supply. Capital organization enables capital to exploit 
fully this unfortunate position of labor. If capital supplyjs 
abundant and labor scarce, capital must seek labor, and or- 
ganization here again enables a factor to gain the full advan- 
tages of a favorable situation. If land supply does not keep 
pace with the growth of other factors, it can force them to 
give a large share of the product for rent. Better means of 
communication and transportation have recently enormously 
increased the available supply of agricultural land, and 



172 AN INTRODUCTION TO POLITICAL ECONOMY. 

agricultural rents have fallen. The_suppjj of cit5L-la.njiJiiaa. 
not increased equally with demand, and urban rents have 
increased enoi-mously all over the world, owners of building 
sites favorably situnted in large cities often obtaining a large 
proportion of the entire product of the business carried on in 
buildings erected on their sites. 

Diijisioii of ^Labor. — A characteristic feature of the 
organization of the factors in the present stage of industrial 
enterprises is what is commonly called a division of labor, 
but which might with equ il propriety be called a co- 
operation of labor. Productive processes, especially in 
manufactures, are divided into minute parts, and one part, 
or perhaps two or three very small parts, given to each la- 
borer. One man makes one little part of a watch, another 
a second, and there are so many little parts that it is said 
that it_£fi4uires the co-operatiun at least of three hund red 
persons to organize properly a watch-making establishment. 
There are s^ixty_ or seventy distinct branches in the manufact- 
ure of a pianOj and a^ many in the manufacture of a boot. 
But the word co-operation used shows that the men are 
Avorking together. The parts divided must be united to 
form one whole. When the phrase division of labor is used 
we look at one side of the process ; when the word co- 
operation, at another. Division of labor, machinery, and 
the use of natural powers, like water, steam, and electricity, 
are the chief part of the explanation of the marvelous in- 
crease in the productivity of the productive factors; onejnaiJ 
performing the labor now which formerly re^uireithalaboi^ 
of ten, one hundred, or even a thousand men. 

Advantages of Division of Labor. — The advantages 
of a division of labor have been enunierated as follows : 
Fii'st, a gain of time. A change of operations costs time. 
Less time also is consumed in learning one's business, as the 
labor of each is more simple. Second, greater skill is ac; 
quired because each person confines himself to one operation 
and in that becomes remarkably proficient. TMrd, labor is 
us,ed_jnore advantageously a Some parts of an industrial 



ORGANIZA TIOX OF THE PRnDUCTlVE FA CTOliS. 173 

}>rooes.s can he perfoniied by :i weak person, otlieis require 
unusual physical strengtli ; some require extraonlinary intel- 
ligence, sonie can be performed by a man of very ordinary 
intellectual powers, and so on, indefinitely. Each one is so 
employed thai his entire power is utilized, and work is found 
for all, young and ohl, weak and strong, stupid and intellect- 
ually gifted. Fourth , inventions are more frequent, because 
the industrial processes are so divided that it is easy to see 
just where an improvement is possible. Besides this, when 
a person is exclusively engaged in one simple operation, lie 
often reflects on this, understands it thoroughly, and sees 
how the ap|)liances he uses could be improved. Laborers 
have made many im|)oitant inventions. Fifth , capital is 
better utilized. Each laborer uses one set of tools or one 
part of a set, and keeps that employed all the time. When 
each laborer does many things he has many tools, and some 
aie always idle. 

Disadvantag es. — The disadvantages of a division of la- 
bor should be noticed. It makes it possible to employ women 
and children, and the proportion of men employed decreases. 
Child labor and labor of women often displace men, and in 
American cities one sometimes finds fathers at home keeping 
house while children and wives are at work in factories. 
The home is thus demoralized, and the I'ising generation be- 
comes weak in body and mind and depraved in character. 

The de pend ence of man upon man is increased in the man- 
ner previously described, and this is frequently, at least, par- 
tially an evil. An international dependence arises wliich 
occasionally produces intense sufl^ering. The so-called "cot- 
ton-famine" in tlie north of England during the American 
civil war illustrates this. America grew cotton, England 
manufactured it, and this seemed to work well until it bo- 
came impossible for England to secure the cotton supply 
from our South, and the result was intense suflering of hun- 
dreds of thousands of working people in no wise responsible 
for the distant war. 

Laborers are often rendered helpless on occasion of a 



174 AN INTRODUCTION TO POLITICAL ECONOMY. 

change of production, having learned to do only one thing, 
which is now no longer required, and having become too old 
to acquire a new skill. Dickens describes evils of this kind 
in his Hard Times. 

When labor is rendered simple it loses both its attractiy^joess 
and its educational value at the same time. One can love 
his work when one manufactures a whole watch, bearing the 
impress of care and skill; but who can love the mere routine 
of raising a sledge-hammer and letiing it fall for ten hours a 
day? M. de Tocquevjlle, in his Democracy i?i Am erica . 
attributes the high average intelligence of Americans tQ_tIie 
fact tliat labor, when he wrote, was not so divided with_us 
as^ elsewhere. 

' Remedies for the Evils of Minute Division of 
Labor. — Education, particularly industrial training and pop- 
ular work like that in wliich Chautauqua is engaged, labor 
organizations with their debates and discussions, political 
life with universal suffrage, and increased leisure, are all 
means whereby the evils of division of labor may beiobviated. 
(When labor becomes soulless, ceasing to minister to fullness 
jof life, increased opportunities for development outside of 
jthe industrial field must be offered. Hours of labor must 
be shortened, but not necessarily equally. A clergyman or 
professor finds opportunities for the harmonious development 
of all his faculties in his occupation, and the reasons for a short 
labor day for factory operatives do not exist in his case. 

Increased Productivity. — The tremendous increase of 
productive power, due to division of laboi', has often been 
estimated more or less accurately. It has been said, for 
example, that modern inventions and discoveries in the 
gieat civilized nations have a productive power for each fam- 
ily of five persons equivalent to the labor of sixty slaves in 
classical Athens. Now, the civilization of Athens was 
based on slavery, and it is estimated that there were twelve 
slaves to a free Athenian family. Natural forces do for us 
five times as much as slavery did for Athens. 



PART III. 
TRANSFERS OF GOODS. 



CIIAITKR L 

I N T li I) U C T a Y . 

Transfers of goods are of two kinds : one-sided trans- 
fers and two-sided transfers of goods. Transfers of gooda 
constitute a large jtart of our economic life. The business 
of one important industrial class, called merchants, consists 
in ert'ecting transfers of goods. The operations in which 
merchants are engaged we call commerce. But commerce 
requires a multitude of other businesses to assist it, and 
among them are especially prominent the means of commu- 
nication and transportation, such as public roads, canals, 
I'aiJways, telegraphs, telephones, and banks. These agents of 
commerce do not confine their functii)ns to the assistance of 
merchants, but they aid the entire community in bringing 
about desired transfers of goods. 

Exchange. — The part of political economy dealing with 
transfei's is usually called exchange, because transfers are 
mostly two-sided, and it is with these two-sided transfers 
that we are especially, though not exclusively, concerned in 
the chapters which in the present work are placed under the 
1 title, " Transfers of Goods." Taxes, the chief kind of oiie- 
I sided transfers, are more conveniently treated under finance, 
1 while bequest and inheritance may be better discussed under 
distribution, which is so powerfully affected thereby. Money 
and banks, however, which are treated in the present part of 
this book, are agencies for assisting in one-sided transfers 
as well as two sided transfers of goods. 
I Value. — Certain conceptions which quickly arise in ex- 
changes must now be defined. The first is value. What do 
M-e mean by value? Value is a quantity of utility. Utility 
means capacity to satisfy human wants, and when we measure 



178 AN INTRODUCTION TO POLITICAL ECONOMY. 

this and make comparison between the quantity of utility- 
pertaining to one good and the quantity of utility pertaining 
to another good we form the conception which we call value. 
When we say that this horse is twice as valuable as this 
cow we mean simply that it is twice as useful. 

Utility and Value. — A distinction is often made be- 
tween utility and value, which is based on a logical fallacy. 
We say water is useful but it has no value. When, how- 
ever, we say water is useful we refer to water in general, 
but when we say water has no value we refer to a concrete 
quantity of water, as a pint of water in a pitcher. Now, a 
particular concrete quantity of water has no value, but it 
also contains no such quantity of utility that we are willing 
to give things in exchange for it which have cost an apjjre- 
ciable amount of labor or sacrifice. If we lose one gbissful 
of water we readily obtain another, and the exertion of get- 
ting another glass is less than the exertion of paying even 
the smallest sum, one cent, for the glass. The utility is less 
than a cent. It has no value because the amount of utility 
is^not great enough to be measured. If, however, a partic- 
ular concrete quantity of water, as a gallon of water, brought 
into an Oriental city by a water-carrier, has an appropriable 
quantity of utility, then it has also value. Something can be 
procured in exchange for it. 

Air, water, sunshine are useful, but as a whole they are 
not appropriable and not exchangeable, and consequently we 
cannot say that as a rule they have value in themselves. 

Value in Use and Value in Exchange. — A distinction 
is also made between value in use and value in exchange, 
Avhicli does not seem to be well drawn. Value in use appears 
to be frequently used as equivalent to utility, but sometimes 
it is equivalent to subjective value as opposed to objective 
value, that is, value of a thing to its owner as opposed to the 
market value, or value which others agree to place upon it. 

Elementary Value, Form Value, Place Value, Time 
Value. — Various kinds of value have been mentioned, iP 
of which the following are specially important : el eme ntary 



IXTRODUCTORY. 179 

value, f(2i"]n value, place value, tinu' value. Elementary vuhu; 
refers to value of raw material. It is with the produeliun of 
tills value that agriculture, and other branches of extractive 
production, like mininLj, are concerned. Form value is due 
to form and shape given to raw material. Manufacturers 
produce this kind of value. Time value and plate value are 
values due to the fact that goods liave been brought to 
the place where needed or saved till the time when needed. 
The merchant ))roduces these kinds of values. He adds 
|)ropvrties lo goods; namely, the property of being in the 
right place autl of l)C'iiig there at the right time. 

Values arc merely relative, and consequently there can be 
no such thing as a general rise or fall of values. Let us sup- 
pose that to-day two bushels of wheat exchange for three of 
oats, and to-nlorrow for four bushels of oats. We may say 
that wheat has risen in value, but it is obvious that exactly 
in the saine proportion oats have fallen in value. 

Price.r — Value expres s ed in money is called price. There 
can be such a thing as a general fall or a general rise of prices. 
A gene ral fall in prices means an increase in the value of money, 
and aji(vneral rise in^ prices means a fall in the value of money. 

Demancl and Supply are expressions constantly used in 
political ecoiiomy as also in practical life. It is said that de- 
mand and supply regulate price, but clear ideas do not usually 
accompany this expression. Supply and demand are constant- 
ly varying quantities of things. An incr eased demand may 
lead t o increased suj)ply, but an increased supply not infre- 
quently goes aheail of actual demand and increases demand. 
The supply at a given moment may be a fixed quantity, but 
what is the demand ? It is_ stated as desire accompanied by 
purchasing power. But this fluctuates continually. At one 
time d eman d may fall far short of supply ; at^ another price 
it may far exceed supply and bring about an increase in sup- 
ply Demand and supply tend to equality, and this tendency 
1oj)erate8 through price. Prices are lowered and raised in 
such a manner that a rough kind of equilibrium between 
supply and demand is brought about. 



ISO Ay INTRODUCTION TO POLITICAL ECONOMY. 

Forces which influence Demand and Supply. — But 
there are all sorts of foi'ces at work back of demand and 
supply, making tliese wliat they are. Any one vvlio stops 
at demand and supply in his economic studies has failed to 
go below surface phenomena. Laws and customs all affect 
demand and operate on supply. Has religion any thing to do 
with demand ? Certainly. Thanksgiving day increases the 
demand for turkeys, and Eister increases the demand for_ 
eggs. This increased demand operates in two ways. First, 
it raises prices, and that tends to check the demand ; it is a 
counteracting tendency. Second, there is an effort to bring 
to the market an increased supply to satisfy the unusual de- 
mand, and occasionally the demand at existing prices is ex- 
ceeded, when equilibrium is restored again by lower prices, 
which increase demand. Religious holidays affect labor sup- 
ply. These holidays were so numerous in Brazil some years 
since that the national economy was injuriously affected, and 
through the efforts of the emperor these were greatly reduced. 
Labor organizations and other organizations of productive 
forces try to regulate supply and demand in a manner bene- 
ficial to themselves, and this is often, though not always, in 
a manner beneficial to the general public. To withhold sup- 
ply for a time from those demanding it tends to raise prices, 
while to press it upon them leads to " slaughter-prices." What 
we may technically call an " urgency " of supply and " ur- 
gency" of demand are then important elements in determining 
prices. Fashion suddenly increases and as suddenly decreases 
demand, and by its rapid changes produces loss. Inheritance 
and bequest affect demand and supply through their action 
on the distribution of wealth, and this is the case with all 
laws of property. When the great bulk of national resources 
is widely distributed so that many have a competence, but 
few wealth, the demand for commodities and the supply of 
commodities to satisfy this demand will both be of a very 
different character from demand and supply in a time in which 
a large proportion of material wealth is in the hands of a few. 
In the former case there will be a large production of com- 



IXTRolH-CTOnV. isi 

forts aiul convcnicncos with result iiiLj i^cncr.-il wcll-l)C'int;j, :xs 
in the best days of the Konum Kepiiljlic, whilo in the hitter 
there will be wanton luxury laboriously supplied, as the feasts 
of the emperors, by searehiug sea and land for thin<;s diili- 
eult to obtain. Tliis wanton luxury in Itonie, so finely sui- 
irized by Juvenal, will be aeeonipanied by loose morals, 
decay of civic virtues, general rottenness, while the magnifi- 
cence of the few contrasts vividly with the beggarly wretch- 
edness of the depraved masses. 

Back of demand and supjjly we have such foiccs as these 
to consider : disposable surplus, for the amount I will give for 
a thing I want depends more or less on how much I can give ; 
thritj, industry, and intelligence increasing demand, but at 
the same time, by application and by improvement, increasing 
supply with less actual outlay of economic goods for the at- 
tainment of a given result. 
■-f Cost of Production. — When production of commodities 
can be indefinitely increased, as is the case with cloth, stoves, 
manufactured articles generally, also agricultural produce, 
the cost of production is the factor among those acting on 
the surface of industrial society, as it Avere — that is to say, 
leaving out the deeper causes — which, apart from temporary 
rtuetuations, regulates price. There is a price Avhich will 
recompense the various productive factors. Production is 
carried on so long as that price for commodities can be ob- 
tained. If demand for any commodity admits at any time, 
of a higher price, this is followed by increased production,! 
providing always that the tnovements of labor and capital are\ 
freejvoith respect to the branch of production concerned. If' 
price falls below the price necessary to remunerate the fac- 
tors, production will fall off, providing capital can be loith- 
drawn from the pursuit without large proportional lossJ 
Leaving out of view deeper causes, we may say price depends 
immediately on demand and supply, and secondarily, and iiu 
the long run, on cost of j)roduction, provided we have free 
competition; that is to say, provided the How of laboi- and 
capital is unubstrucled. 



182 A.V mTROnUVTIOX TO POLITICAL ECONOMY. 

Freedom, of Competition,— But we must observe this 
phenomenon: that precisely at the present time, owing to 
combinations and the growing importance of natural monop- 
olies in an ever-increasing proportion of the industrial field, 
the movements of Jabor and capital are not free. The city 
of Baltimore jjays fifty cents a night for each electric light 
burned in the streets. This is truly exorbitant, for Chicago 
supplies itself with electric lights for fifteen cents a night* 
each, and other cities for still less. Suppose, however, I 
wish to furnish the city with lights for thirty-five cents each. 
The opportunity to do so will not be given me, because those. 
who furnish the lights have a de facto monopoly. We hav e 
then monopoly prices, and these are prices which do not de- 
pend on cost of production, but which are fixed at the most 
remunerative point. If price increases, demand falls; if price 
is lowered, demand increases. Intelligent monopolists will 
fix prices at that point which will yield largest net returns. 
A great fall in prices of service rendered by monopolists, like 
street-car corporations, will often be followed by such an 
increase of demand for services that net returns will in^ 
crease. This brings about limited but insufficient control 
of monopolies. 

Social and Individual Cost. — Cost of production must 
be viewed in two aspects: the social and the individual. The 
cost of production to society consists in efforts and sacrifices ; 
to the individual, in what is paid for these efforts and sacri- 
fices. What is the cost to society of a house ? It is the days 
of labor and the materials used, with wear of tools and im- 
plements, or services and things which have been consumed. 
These are real wealth, and society has lost that much unless 
it is saved in the house. These services and things have been 
diverted from other possible uses. The individual cost to 
me is what I pay for it, say five thousand dollars, but so- 
ciety is neither I'icher nor poorer because that sum of money 

*This figure is taken from a leading newspaper of that city. It has by 
some been called in question. Of course the value of the illustration does 
not depend on its precise accuracy. 



IXTROD I'CTOR Y. 183 

lias been transferred by me to a builder. That is an indi- 
vidual transaction. S ocial cost is_\yhat Adam Smith caU.t> 
the " real cost" of production. 

Fair Price. — A conception of fairness is powerful in its 
intluence upon prices. During the Middle Ages tlie Church 
and also the public authorities attempted to regulate all 
i>riccs by ideas of fairness. Fair pv'ice, Justum j)rctiu7n, was 
perhaps the economic topic must tliscMissed ibr centuries, and 
in the writings of the most renowned of the philosophers of 
the Middle Ages, Thomas Aquinas, we find fair price treated 
with great learning in all its details. Excommunication was 
not regarded as too severe a ])enalty for violations of fair 
price. To-day, as has been stated, Irish hmd courts fix fair 
rents. To-day city authorities and State authorities fix fair 
prices for many services, as street-cars, gas supply, even cab 
service, railway transportation of goods and passengers. 
When public authorities furnish commodities and services 
they try to fix price by considerations of fairness. Univer- 
sity trustees try to pay fair salaries to college professors, 
and fees charged by lawyers and professional men are dis- 
cussed M'ith reference to fairness, being pronounced by pub- 
lic opinion now fair, now unfair. 



Read the author's article "Natural Monopolies and Local 
Taxation" in the magazine Lend a Hand, published in Bos- 
ton, INIarch, 1889; also chapters xvii-xxiii in his Problems of 
To-day. One of the best discussions in the English language 
of the theory of value and of the law of demand and supply 
will be found in Professor J. B. Clark's Philosophy of Wealthy 
chapters v and vi. 



CHAPTER IT. 

MONEY. 

7^ There are three different conceptions of money; namely, | 
the populai-, the legal, and the politico-economic. ' 

y. The Popular Conception, — What do people mean in 
.' every-day language when they use the word money ? Pres- 
ident Francis A. Walker has answered this question in the 
definition of money found in his excellent little work, Money, 
"yC \ Trade, and Industry. It is as follows : " Money is that 
j v/hich passes frgsly f i:om_hand to hand throughout the com- 
munity in final. discharge of debts and full payment for com- 
modities, being accepted equally without reference to -the 
character or credit of the person who offers it, and without 
the intention of the person who receives it to consume it or 
enjoy it, or apply it to any other use than, in turn, to tender it 
|to others in discharge of debts or full payment for comniodl- 
jties." This is what men ordinarily mean when they use the 
Svord money. 

(The Legal Conception is different. Whatever the law 
declares a legal tender is money in the legal sense. A legal ! 
tender is that which the law compels persons to receiyftinj 
payment of debt. 

The Politico-Economic Conception. — But political 
economists have framed still a third definition of money, 
i which we may for lack of a better term call the politico-eco- 
nomic conception. Money in the politico-economic conception 
must perform all of the following functions : First, it must 
serve directly and immediately as a measure of value; but 
value measures value as length measures length. We must 
, take as a unit a definite concrete value like our gold dollar, 
1 consisting of 25-8 grains of gold, nine tenths fine — that is, 



^fOXEY. 1S5 

nine tcntlis jiure gold anil one tenth alloy. Wlien we say 
that a eoiniuoilhy is wortli nine dollars we mean that its 
vahie or quantity of utility is nine times that of our "unit of 
value-measurement," consequently money in this sense 
must be composed of material in itself valuable. {Second, it 
must serve as a medium of exchange. This is the i)rinci]»al 
function of all kinds of money. Commodities are not usually 
directly exclianged for one anotlier, but indirectly through 
the medium of money. The farmer selling his corn for mon- 
ey, and with this money buying sugar, really exchanges corn 
for sugar, the money serving merely as a convenient medium. 
TJiird, money in the present sense must serve as a means of 
making payments^ and this is facilitated usually by having a 
legal-tender quality attached to it. Payments are often one- 
sided transfers of goods, and on that account the third func- 
tion differs somewhat from the second. Fourth, money in 
the politico-economic sense must serve as a store or recepta- 
cle of value. It must store up value so that it can be trans- 
ferred from phu'e to jjlace and time to time. Roman gold 
money, preserved for two thousand years, has brought value 
down to our own time; and gold money taken across the 
Atlantic bears with it stored-up value. 

These distinctions render it easy to answer otherwise per- 
plexing questions. Are national bank-notes money ? In the 
popular sense, undoubtedly, but not i n the legal sense nor in 
the politico-economic sense. Are n ational treasury notes 
money? Yes, in the popular and legal sense, but not in the 
third sense. Gold money in the United States is money in 
every sense of the word. 

Functions of Money. — Money has been called one of 
man's greatest inventions, ranking with the alphabet. Cer- 
tainly present civilization would be impossible without it. 
Its services are so obvious, however, that it is not necessary 
to dwell upon them. The reader has only " to look and see." 
Exchange would be awkward and tedious without money, 
and now that labor is so divided exchanges form a jiart of 
our daily life. We C'lijoy few material good things which 



1S3 AN INTRODUCTION TO POLITICAL ECONOMY. 

have not been exchanged in one way or other many tinies 
before they reach us. Without any medium of exchange 
the man with a horse who wanted a coat instead would be 
obliged to hunt for a tailor who desired a horse, and after 
finding him the exchange would very likely be defeated 
owing to inequality of values of articles to be exchanged. 
The coat desired might be only half as valuable as the horse, 
and the tailor might have nothing else wanted by the owuer 
of the horse. Simple illustrations like this can be continued 
indefinitely. We can also keep values easily in mind and com- 
pare them readily when we have one common measure. Money 
enables us to travel, carrying stored-up value with us, and 
assists in the accumulation of capital by providing, as it 
\yere, a receptacle for it. If we raise more potatoes than 
we need, we can keep them only a short time, but we can 
exchange them for money, which can be kept. Thus we 
save our surplus. Money is a form of capital which has 
been called free. It can by exchange be turned hither or 
thither, being ready for the best use which may oiFer. 

Qualities Desirable in Money. — Many things have 
been used as money during the world's history. Among 
them the following may be mentioned: Cattle nearly every- 
where; furs, especially in northern countries; qilj^ warnpum 
among the early New Englanders; tea^at Russian fairs; to- 
bacco, as in Maryland and Virginia; iron; copper; all the 
baser metals and the two precious metals, gold and silver. All 
civilized nations have finally found gold and silver best 
adapted among all the metals for money, and they are so used 
to-day in every part of the globe. The following are rea- 
sons why gold and silver are especially suitable for money- 
metals: They are universally desired, and every one is will- 
ing to accept them. They can be used not only in the arts 
but for ornaments, and this helps to give them stability of 
value, for if their value begins to fall the demand for them 
for other purposes than money tends to increase, and this 
prevents so great a fall in their value as would otherwise 
take place. Gold and silver are desirable on account of tlie 



MOXEV. 187 

vast quanlitics already in exi.stenoc. Tlio gold in coin and 
bars, and silver in coin is now estimated to be worth some six 
th ousand jmllions of" dollars, and compared with this the 
y early tM -odiu-tion is small, rangmg at present from about 
two hundred and ten millions to two hundred and thirty-live 
millions of dollars. 

The prodiu'tiou of one mine in one year, even if extraor- 
dinarily huge, produces a comparatively small effect, being 
like a glass of water thrown in a pond. It must diffuse itself 
over a vast surface. 

Their h igh spccitic yajuu — that is, high value in iM-oportion 
t o weight — adapt them to use for money, b ecau se easily trans- 
jjoitablfi. Their value at different places widely separatiMl 
is more nearly equal than it eould otherwise be. Durability 
and indestructibility are valuable qualities, while extreme 
divisibility without loss of value makes it possible to meas- 
ure any desired value, great or small. Malleability renders 
coinage easy, and homogeneity jiiakes any one ounce or 
pound just as valuable a^ any other pound or ounce. They 
are readily recognizable by their color, their peculiar ring, ♦ 
a nd by other attributes, and thus they are adapted to popu- 
lar use. Xo other metals seem in like measure to combine 
80 many desirable qualities. 

Paper money has been extensively used. Paper money 
consists of promises to pay on demand, which people are 
willing to receive in place of metallic money. They are 
usually promises either cf banks or of governments. People 
take them because they believe the promise will be kept, or 
because they think that others will accept them, or because 
they have been made a legal tender, and people must accept 
them for debt, or because, as usually happens, they are re- 
ceivable for taxes. Where this confidence in paper money is 
complete it is preferred to precious metals, because more 
convenient. If any one will read all that is engraved on the 
paper money circulating in the United States he will per- 
ceive its nature, and he will discover that it is of two kinds: 
notes of national banks and notes of the federal government. 



-t 



188 AN INTRODUCTION TO POLITICAL ECONOMY. 

Adam Smith has compared paper money to a road through 
the air. It^aves the use of the precious metals, and_capital, 
otherwise employed as a medium of exchange, can be used 
for other productive purposes. It is thus, he says, as real a 
saving as if we could travel through the air and use tlie 
ground now occupied by roads for agriculture and other 
purposes. The " greenbacks," or paper money of the United 
States, now amount to a little over three hundred and forty- 
six millions of dollars. 1'hey perform the function of gold 
and silver even better than gold and silver — in foreign ports, 
like Hamburg, often selling for a premium — and this saves 
the country this amount of capital. To withdraw them from 
circulation would be simply a waste.* 

" Inflation." — Certain dangers connected with paper 
money issued by government must not be overlooked. It is 
easy to set the printing-presses at work and to issue an 
illimitable amount of money. This is much easier than tax- 
ation, and has often promoted waste and extravagance. Be- 
sides, only a limited amount can be kept in circulation at its 
nominal value, and when this is exceeded it falls below 
l" par," which means that paper money will no longer pur- 
Ichase as much as the same amount of gold and silver money. 
This produces great inconvenience and suffering, because 
the inferior money drives the better out of circulation, and 
prices rise on account of the large supply of money. This 
diminishes the value of fixed salaries and of all fixed incomes, 
of interest-payments on all debts and of wages, until these 
rise correspondingly, and this takes a long time. It is an 
inconvenience in international trade, because foreign coun- 
tries do not recognize the legal tender quality of paper money 
and will not receive it for taxes, and because foreigners 
lose faith in a paper money which is not kept at par with 
the precious metals. 

Is Paper Money Safe ? — Some have so keenly appreci- 
ated the dangers of paper money that they have entirely op- 

* The writer lias paid a premium for French paper-money in Geneva, 
Switzerland, where he could have obtained gold money for par. 



Moxr:)'. ISO 

posed its use. This docs not soi'in reasonable. Paper money, 
like other instruments of a higli civilization, should be cm- 
ployed with rare ; but (he daniau^e which the \k-<{ inslru- 
nients and applianees may do when unskilUuUy handled 
oMLrlit not to induce us to renounce the advantages which 
they ofter. Rather we ought to acquire prudence, and this 
is the course which modern nations are actually i)Mrsuing. 
•Several countries are now using paper money, and our own 
among the number. When Congress decided to leave three 
huiulred and forty-six millions of "greenbacks" in circula- 
tion, alarm was exj>ressed in many quarters ; but experience 
has proved that apprehension was groundless. It may be 
sai<l that paper money sliould always be kept at ''p.ir," that 
is, government shoidd always pay c(jin for paper on demand. 
When tl)is is done paper money is said to be redeemable; 
when it is not, paper money is said to be irredeemable. 
Irredeemable paper money is bad; redeemable ])aper money 
good. Attention should then be directed to tliis consider- 
ation : How can paper money always be redeemed? or, how 
much can be issued with safety ? Possibly the amount the 
people will keep in circulation at par may have some rela- 
tion to the gross revenues of government, for these are pay- 
able in piper money, and consequently in making these 
payments paper money is as good as gold. The gross reve- 
nues of our various governments, federal, State, and local, 
j)ayable in p.iper may be three times the amount of our 
"greenbacks." Perhaps we may say that for a prosperous 
community the paper money which the people will gladly 
absorb and prefer to gold and silver is equal to one-third of 
all government revenues payable in this kind of money. 
Possibly, under certain circumstances, more can be kept in 
circulation. Only careful experimentation can determine, 
and an adequate "reserve" — that is, supply of coin for pay- 
ment of paper on demand — should be maintained. Our ex- 
I)erience in the United States is an instructive example of 
economic expeiimentation. 
The Amount of Money Needed. — The question has 



*■ 



190 AN INTRODUCTION TO POLITICAL ECONOMY. 

often been asked, How much money does a country need ? 
It has been replied, " It makes no difference. If the supply 
is abundant, prices will be high ; if the supply is small, 
prices will be low and the same amount of money will go 
further. A little money will do the work of money as well 
as a large supply." It is true that there is a relation be- 
tween the supply of money and its value, and that large sup- 
ply means small value and small supply large valne^ but the 
conclusion drawn does not follow. When the amount of 
money is small barter is always extensively used, and. this is 
an inconvenience, obstructing trade and causing loss. Enough 
money is needed so that it can^e used in all ordinary trans- 
actions of life and to enable us to avoid a too extensive em- 
ployment of barter. But one of the most common business 
transactions is the payment of wages. We need enough 
money so that it will not be too valuable to use for that pur- 
pose ; in other words, the day's labor of an ordinary laborer 
sKould not be inferior to"tKe value of a piece of legal tender 
coin which can be conveniently carried. We need, then, 
enough money so that the value of a coin of convenient size i 
shall not exceed a day's wages of an unskilled laborer. Bujb 1 
it is desirable that money should be still cheaper, so that 
wages may be divided into parts. It is not necessary for 
money to be cheap enough to enable us to make our smallest 
purchases with full legal tender money, because in addition 
to full legal tender money all countries have subsidiary coins, 
like our fractional parts of a dollar, containing less coin in 
proportion to nominal value than full legal tender, and legal 
tender only for a small amount, with us ten dollars, and 
minor coins like "nickels" and "coppers" legal tender for 
still less, with us for twenty-five cents. Silver dollars fulfill 
the conditions laid down, but gold does not. Gold is more 
convenient for large payments. The two supplement each, 
other. 

Fluctuations in the Volume of Money. — The ground 
just given for the need of a qertain amount of money, to be 
determined by circumstances, is not the only consideration 



MONEY. 101 

to be kept in mind in flot(M'iniiiinc!; the amount of money re- 
quired by a country. After the above reriuirenienl has 
been satisfied it may make comparatively little difference 
wlu'ther we have much or little, but it makes a great deal 
of difference whether we increase or decrease the amount. 
I t is not t he^^niuch or little," but it is the "more or less," 
that is of vital concern. N othing produ^^s more inte_nse 
euiiering than a decrease in the amount of money, and this 
is on account of the connection between past, present, and 
future in our economic life. He who treats every economic 
question as if every day were a period qf tune apart by it- 
self has scarcely taken the ,^rst step toward the compre- 
hension of economic society. Obligations have been in- 
curred in the past, and these are payable in the present or 
in the futui*e. Now, to decrease the amount of money 
raises the value of every debt and adds to the burden of 
every debtor, public and private. I^ncrcnscs tlio value of 
notes, mortgages, railway bonds, and local, State, and fcdoral 
b onds. It enriches the few at the expense of the niaiiy. 
An increase in the amount of money does not have the re- 
verse effect if it is small, because on account of the gi-owth 
of wealth, the continually diminishing use of barter, and the 
extension of trade into countries formerly outside of inter- 
national commerce, the opening up of new countries in 
Africa, Australia, and elsewhere Avhich need a supply of 
money, the value of money tends to augment unless there is 
agrowth in the supply. If the am ount remains stationary, 
the creditors are enriched at the expense of the debtors. 
If the amount of money is arbitrarily increased, so that the 
value of all debts may fall, it amounts to virtual robbery of 
the creditors. When ai-bitrarily the amount of money is 
decreased it amounts to virtual robbery of the debtor class. 
Tresident Walker has come to the conclusion that while 
it is dangerous to increase the supply of money arbitrarily, 
as by the issue of paper, it_is a fortunate thing if the amount 
of money slowly and continually increases without direct 
government actiun, as by the discovery of new and more 



192 AN INTRODUCTION TO POLITIGAL ECONOMY. 

fruitful gold mines. His reason for this is tbat the business 
community is always a debtor commimity, while the idle 
classes are creditors, and that a slight depreciation in the 
value of money brought about by natural causes, and Avhich 
consequently does not destroy confidence on the pai't of 
capitalists, gives a " fillip " to business and makes it pros- 
perous. It may also be urged that with the progress of 
improvements in industry prices tend to fall, and that unless 
money increases in amount those who take no active part 
in these improvements nevertheless gain the benefit of them. 
/ Silver Qiiestion and Bimetallism. — The discussion of 
the amount of money needed by a country naturally brings us 
to two topics, called the silver question and bimetallism. Silver 
and gold are both used as money, and as government coins them 
it determines the ratio in which it will do this. A ratio which 
has been commonly established has been one to fifteen and 
a half, which means that in full legal tender coins one ounce 
of gold shall be equal to fifteen and a half ounces of silver. 
/ This is the European ratio, but the United States has estab- 
Vjlislied the ratio of one to sixteen. The European ratio was 
maintained for about seventy years during this century by 
the action of a combination of countries called the LatJ^n 
Monetary Union , in which Belgium, France, Switzerland, 
and Italy were most prominent. These countries opened 
their mints for both gold and silver to every one, and coined 
money in the ratio of one to fifteen and a half. Every one 
who had gold or silver could have it changed into money. 
About 1873, however, Germany, having formerly used sil- 
ver, determined to replace it with gold, and thus threw an 
immense amount of silver on the market, while the demand 
for gold was correspondingly increased. Other countries 
pursued similar courses, our own country demonetizing sil- 
ver, that is stopping the coinage of silver, making it only a 
subsidiary coin, instead of a full legal tender, as it had been. 
Like Germany, we introduced what is called gold monometal- 
lism.. Gold alone was henceforth to be converted into coins for 
any one who offered it to our mints. This action alarmed 



MONEY. ins 

the countries of the Latj.rL Union, and they suspended the 
colnajji; of s^ilvei'. To add to the confusion, hxrgc discov- 
e ries of silver had increased considerably the supply of silver, 
an d the old ratio was destroyed, siher falling in a few jears 
so much in value as measured in gold that it retjuired twenty 
ounces and more of silver to purchase one ounce of gold. All 
this naturally increased the value of money, and so the value 
of all dehls, producing great distress in Germany and in nlj 
other industrial lands. l)ut tlic iiu nase in debts was only a 
p art of the mischief. Orien tal and South American coun- 
tries us e silver, and trade was easily carried on with those 
countries so long as gold and silver would readily exchange 
at an estabTIsTied ratio, but when the ratio began to fluctuate 
an uncertain and demoralizing element was introduced into 
trade, which rendered it highly speculative, and entailed 
loss upon the business Avorld. The merchant in Liverpool 
who sold goods to a merchant in India agreed to recene a 
fixed sum of silver money, but in England it was necessary 
to turn this into jrold, and a fall in the value of silver mirjht 
b ankrup t liim. 
y\ Bime tallism has been proposed as a remedy. This means 
that at a tixnl r.ii io government must coin all gold and silver 
which any l)od\' desires to liaA'^e coined. One country alone \ 
cannot introduce bimetallism, because other countries miffht 
send to it all their silver and take away its gold, just as 
Germany evidently contemplated draining France of at least 
a large portion of her gold. Experience seems to demonstrate 
that national bimetallism is out of the question, and no 
scientific economist favors it. Economists have, however, 
generally come to favor what is called international bi- 
metallism. International bimctallisni means bimetallism' 
based on an international agreement like that which obtainedj 
in the case of the Latin Union before 1S74. It is urged that! 
all countries should agree to coin gold and silver at the ratio 
of one to fifteen and a half. If the principal commercial 
countries of the world, say France, Germany, England, and 
the United States, slwjuld enter into such an agreement, there 



• 194 AN INTRODUCTIOX TO POLITICAL ECONOMY. 

is no doubt that the ratio could be maintained. Gold and 
silver are used prinoijjally for money, and owners of gold 
and silver would be obliged either to have it coined at the 
government ratio or sell it on the market for use in the arts. 
The arts absorb only a small proportion of the annual prod- 
luct, to say nothing of the enormous existing supply of gold 
and silver money in the world. Governments then are in 
the position of monopolists, and by agreement could main- 
tain a tixed ratio. The advantages of this would be to 
insure a more adequate supply of gold and silver and to 
facilitate business transactions between gold-using and silver- 
using countries. 

A powerful creditor class in England, which gains by an 
appreciation in the value of money, it has been stated, has 
been powerful enough to keep England from joining in the 
7^ action proposed by the TJniterl States and France for the es- 
tablishment of international bimetallism, and Germany has 
refused to co-operate unless England's aid could be secured. 
Consequently up to the present it has not been possible to 
establish international bimetallism. 

The " Bland Bill." — A free coinage of silver, that is, of 
all silver offered, now exists in no country which uses gold, 
but the United States has introduced a limited coinage of full 
legal tender dollars. By the so-called " Bland Bill " of 1 878, 
at least two million dollars' worth of silver must be coined 
every month by the mints of the United States, and not more 
than four million dollars' worth may be coined, and in the 
ratio to gold of sixteen to one. The silver is bought at the 
market price, and the government makes the difference as a 
profit, amounting to several million dollars a year. Alarm has 
been expressed because it has been feared that silver will drive 
gold out of circulation. Up to the present time this fear has 
proved as baseless as the anxiety about the greenbacks. . The; 
gold coins and gold bullion, in mints and assa}'' offices and 
ready for coinage, amounted to over seven hundred millions 
of dollars on July 1, 1888, while the silver money in the 
United States amounted to a little over three hundred and 



MOXEY. 196 

sevcnty-fivo millions of dollars, aiul tins incliulcrl ovor sev 
enty-iive inillions (>!" subsidiary silver coins. It is diliicult t 
see how so small an amoiuit of silver can throw out of cir 
tulation so larue an amount of ijold. We are now coinin 
about thirty million silvi-r dollars a yeai', and it will take ovei 
ten years for the amount of silver to become equal to the 
amount of gold which we now have, but we are also coininc 
gold, and that at the rate of twenty-eight million dollars per 
annum. (Tlie j3er capita circulation of full legal tender silver 
in Franceislvbout fifteen dollars, while with us it is about six 
dollars. J!^t the present rate of coinage, if population should 
not increase at all, it would take over fifteen years for us to se-t 
cure as large a per (!a|)ita silver circulation as France. At the 
same time it is not possible to view the future without some 
apprehension. It would be a serious misfortune to the United 
States to be reduced to an exclusively silver basis while tli^ 
chief commercial and industrial centers of the world use gold 
as a money basis. A recent Parliamentary Commission in En- 
gland has recommended that without international agreement 
England should use more silver, and it is possible that the 
extreme apprehension about the fall of silver may fail of 
realization as did the apprehensions about the fall of gold 
after the discovery of the gold mines in Australia and Cali- 
fornia about 1848. The United States has introduced a 
convenience in gold and silver certificates. Gold and silver 
coin may be deposited with the United States and certificates 
received. The gold and silver coins are repaid whenever the 
certificates are presented, and in the meantime the ])aper 
certificates are more conveniently and safely carried or kept. 



Read chapters vi and vii in "Walker's ]\/one>/, Trade, and 
Industi'y for an able presentation of scientific bimetallism. 
The grounds for gold monometallism are well presented by 
Jevons in his Money and the Mechanism of Exchange. 




CHAPTER III. 

CREDIT AND THE INSTRUMENTS OP CREDIT: BANKS AND* 
CLEARING HOUSES. 

The development of economic life has been divided into 
three stages with respect to the mode in which goods are 
transferred. The reader will remember that these are called 
truck-economy, money-economy, and credit-economy. The 
transfer of goods becomes continually easier as we pass from 
one to the other, and as we make progress in any one of the 
periods. Probably money is the most remarkable contriv- 
ance for facilitating transfers, but, next to money, credit and 
its instruments have rendered greatest service in that part 
of our modern economic life specially concerned with trans- 
fers of goods. Credit is defined by John Stuart Mill as 
" permission to use the capital of another person." Pro- 
fessor Roscher defines credit as " the power to use the goods 
of another, voluntarily granted in consideration of the mere 
promise of value in return." Credi^ has also been defined as 
"confidence in the ability of another to make a future pay- 
ment." None of these definitions seems quite adequate. 
Credit has at least two economic meanings; namely, a com- 
mercial transaction of a certain kind, and the ability to en- 
ter into such a transaction. There are three elements in a 
business transaction to which we apply the term credit: 
first, the pr esent transfer of goods; second, the use of 
the goo ds trans ferred ; third, the future retransfer of the 

gopds or an equivalent, that is, repayment. Professor. 

Knies, of Heidelberg, h;is defined credit as merely "a com- 
mercial transaction between two parties in which the services 
or the value rendered by the one falls in the present, and 
the counter-service or counter-value of the other in the fut- 



CREDIT AXn THE INSTRUMENTS OF CREDIT. 197 

ore." But this socms to err on tlio otlior side, l)y ncglocliii;^ 
the element of confidence which enters into cre.lit transac- 
timisj^ not necessarily and not always confidence in the cliar- 
acter of a person to whom credit is given, that is, to wlioni 
the ability to enter into a credit transaction is accorded, but 
confidence in some person, it may be a surety, or in some 
thmg, as valuable things deposited as "collateral," which may 
be sold if the counter-service is not rendered. The person 
who transfers goods in a credit transaction is the creilitor; 
the person to whom they are transferred, the debtor; the 
amount transferred, the debt. 

Instniments of Credit.— Growing out of credit trans- 
actions we have various documents, or written evidences of 
these transactions,; called instruments of credi^ which are 
used_as_substiUites for money, and which have in great com- 
mercial centers for large transactions so far displaced money 
that it only remains as " small change." 

-^^ilonS. those instruments the simi)lest and most exten- 
sively used is the check. Itjs simply an order to a banker 
with whom one has money on deposit To pay to a person 
named or sometimes " to bearer," a sum of money. Except 
m retail trade and payments of wages, payments for goods 
ajid_services are usually made by checks, and wages are some- 
tmies paid in checks, and goods bought at retail, especially 
when considerable in amount or when the purchases of a 
month or more, are paid for by checks. As an instance of 
the extent to which checks are used the author may men- 
tion that in two years he remembers to have received money 
for services only twice, and then it was something so unu- 
sual that it seemed a strange experience. On the other hand, 
he probably makes half his payments in money. 

Biuikfiis use checks, and when a banker gives a check on 
another banker it_is usually called tTSraf^ If the bankers 
rejidej^n two countries it is often calle'd^rBnT of exchan^] 

Promissory notes are P»"omises to pay, undci-'conditiona. 
named, at the expiration of a certain period. Tliese are 
sjgned by the^ebtor. A person buys goods and ""far value 



198 AN INTRODUCTION TO POLITICAL ECONOMY. 

received " promises to pay the person of whom the goods are, 
bought. But^ the seller may also " draw on " the buyer by 
means of a bill of exchange, also called a draft. Let us say, 

A. is the seller, B. the buyer. A. then writes out an order to 

B. to pay to himself or a third party, as C, " for value re- 
ceived," the amount of the debt. A., the creditor, signs the 
bill. If B. acknowledges the debt, and is ready to agree to 
pay it, he writes on the bill when presented " Accept " and 
signs his name. It then becomes binding, and the merchant 
who does not pay his drafts when they fall due becomes 
bankrupt. A check or bill may be transferred by indorse- 
ment. A person to whom payment is to be made, the payee, 
writes his name on the back with an order that the money 
be paid to a fourth party, D., the indorsee. The payee who 
indorses the instrument of credit is the indorser. The in- 
dorsee may assign the instrument to still another party, as E, 
by a new indorsement, and he then becomes indorser. This 
may be continued indefinitely, and thus the instrument may 
pass from hand to hand in place of money, each one who in- 
dorses it becoming responsible provided that no previous in- 
dorser can be made to fulfill his obligation. Other terms are 
readily understood, as payer, the one who must pay ; drawer, 
the one who di"aws an instrument of credit ; drawee, the one 
on whom it is drawn. 

Book credit is extensively used. When goods are trans- 
ferred a record of it is kept, or, as we ordinarily say, the 
goods are "charged,"' and a bill is afterward sent for the 
amount. A vast amount of credit is granted in this simple, 
old-fashioned way, both in wholesale and retail trade. Re- 
cently large mercantile establishments have tried to abolish 
book-credits, and it may not be too much to say that there 
has been a general movement toward restricting it and defin- 
ing its limits more accurately. 

Advantages of Credit. — The advantages of credit may 
be thus summarized : 1. Credit furnishes a more perfect and 
convenient means of payment in large sums and between 
distant places than the precious metals, saving time and 



CREDIT A.\D THE INSTRUMENTS OF CREDIT. 199 

labo r. This is effected by means of notes, cl iecks , and JiilU 
of exchange. It is thiis^ tliat ojii^ly small sums of mojiu^' are 
s ent from o ne country to another in international trade. 
( )nly balances are paid in money. If some London mer- 
chants owe New York merchants a million pounds and other 
New York merchants owe these London merchants a million 
pounds, it is obvious that no money need leave cither country. 
Tiie London merchants will send orders to their New York 
debtors to |>ay their New York creditors. This is the siinj)lest 
kind of cancellation of indebtedness. Li actual life it is 
more complex, but the principle is the same. If the London 
creditors of New York merchants are not the same as the 
London debtors, the debtors could buy orders of the credi- 
tors and send them to New York. If New York merchants 
owe London merchants, it is ])ossible that Paris merchants 
may owe New York merchants an equal sum, while London 
merchants are in debt to Paris merchants to the same amount. 
Byexchange of orders all debts could be paid. This is 
c_aljed a rbitration of exchange. Naturally a class has arisen 
which deals in these instruments of credit, and this is the 
class of bankers and brokers. Debtors and creditors both 
resort to them. Bankers and brokers are the middle-men 
between debtors and creditors. 

2. Credit takes the place of corresponding amounts of 
goldjujd silver. This: is a saving , en abli ng us to employ the 
p recious metals for other useful ])urj)oses. 

3. C apital is cnij>l(iyed more priHlnctively. lie Avho pos- 
sesses capital, but is for any reason unable or unwilling to 
use it, transfers it to another for compensation, and thus 
both are benefited as well as the i)ublic economy. Other 
things being equal, it is given to him who will j)ay the most 
for it, and in a normal condition of things this is the one 
who can emi)loy it most productively. 

4. Cred it enables those who have business qualifications 
and no capital, or inadequate capital, to engage in business, 
and to employ their talents for their own benefit and for the 
benefit of society. Many tha.-s stare without capital, and in 

9* - ^"^ 



200 AN INTRODUCTION TO POLITICAL ECONOMY. 

the end become capitalists themselves. Credit has been the 
starting-point of many of the large fortunes now existing. 
Credit brings together in numerous instances capital with- 
out business qualifications or inclination for business and tal- 
ent without capital, and thus may be said to be not without 
influence in uniting capital and labor harmoniously. This is 
particularl}- the case with those institutions which supply 
capital to the poorer classes, like the German co-operative" 
credit-unions, which furnish artisans, meclianics, and small 
traders with capital, and with American building associations, 
which furnish the same classes with capital for the construc- 
tion of homes. 

5. C^re^t gathei's together the smallest sums, particularly 
by means of savings banks, and these small sums foriiiinga 
large aggregate are productively employed by joint-stock 
companies and otlier concerns. Capital is thus concentrated 
but its I'eturns are scattered among the people. Credit en- 
courages capital accumulation and promotes thrift. Credit 
in this manner gives employment to small accumulations as 
they are made, and this helps men to provide for emergen- 
cies and for old age. Other advantages of credit will sug- 
gest themselves to the careful observer. 

Evils of Credit. — The dark side of the credit-economy 
must not be overlooked. It continually 4n£0iiJ'ages extmY^,- 
srance, and this is a fruitful source of fraud and embezzle- 
ment. Credit?^romotes precarious speculation, because those 
who engage in it have little of their own capital to lose, and 
are over-reckless with the capital of other people. Our en- 
tire land is strewn with the ruins of businesses wrecked by 
men who have mismanaged the propert}^ which unwise credit 
gave into their hands. As credit sometimes enables the poor 
man with gifts recognized and favorably situated to become 
an independent producer, it frequently enibles the one 
already producing on a vast scale to extend his gigantic 
operations and crush out men who have been independent 
producers. 

It has been said that all . " cousumutive credit, " that is, 



CREDIT A. YD THE IXSTRUMENTS OF CREDIT. 201 

creilit to enuMi' oiu> to spontl^moiiry for one's personal <j;raLi- 
tication, or for personal use in any way, is bad, wliile pr^) 
d m; live cr cLdit^ credit for carrying on a business, is good; 
but the lino cannot be so sliarply drawn. C onsun i|itive credit, 
frequently l eads t o extravay^ance, but it also has (.nahled 
many a young man to develop jK-rsonal powers, and to be- 
come a great artist or scholar, while, as just seen, productive 
credit frequently causes loss. 

B anks an d Clearing-Houses. — Bankers have already 
been deseribeJjJS men who go between borrowers and lenders, 
or as m iddle-men in cred it transactions. They are sometimes 
c alled dealers in cre dit^ and there is little that they do which 
is not in one way or another connected with credit. But 
banks are not mere agents. They have a capital of their 
own which serves the purpose of a guarantee fund, and they 
receive money which their customers deposit with them, and 
mingle this with their own, gaining exclusive control over 
it all. They become the debtors_of the depositors and the 
creditore of those to whom they lend money. Their source 
of profit is not chiefly their own capital, but the capital de- 
posited with them. Sometimes they pay no interest, and if 
they pay interest they charge more, the difference constit'.it- 
ing their profit. 

Formerly banks in the United States nearly all issued 
notes which circulated as money, and this was regarded as 
their principal business. Now onlj national baiiks are al- 
l<liY.ed to issue notes, and they must deposit bonds at Wash- 
iiigton as security for this circulation in addition to paying 
a tax for the privilege. All governments in civilized coun- 
tries have greatly restricted the power of banks to issue 
circulating notes to serve as money, and the number of banks 
that find a source of profit in the production of bank-money 
is constantly diminishing. Perhaps some day all govern- 
ments will, as has been advocated by many able thinkers^ 
reserve to themselves the exclusive right to issue paper 
money. 

CJjeariug-houses_ are lab or-saving iiistitulioiis originally 



202 AN INTRODUCTION TO POLITICAL ECONOMY. 

contrived by employees of banks. Banks in a city Lave con- 
tinual dealings with one another. A customer of a bank de- 
posits with it all bis checks, no matter on what bank drawn. 
it consequently happens that a bank in Baltimore, for exam- 
ple, will receive checks every day on all the other banks, 
while all the other banks receive checks drawn on it. For- 
merly there was continual ruiming back and forth. A run- 
ner from each bank went to all the other banks. Now the 
representatives of all the banks meet in one common place, 
and exchange checks, drafts, etc., and only the differences 
between the sums due and the sums which a bank owes are 
paid. If more is owed to a bank than is due from it to the 
other banks, it receives this difference from the clearingr 
house ; if it owes more than is due it, it pays the difference. 
The sums due the clearing-house and the sums which it must 
pay of course balance perfectly, and it is left without any 
money on hand. 

The clearing-house statistics illustrate the inadequacyj)f 
money to do the business of the world. The total transac- 
tions of the clearing-houses in the United States for the year 
ending September 30, 1888, amounted to over fifty thousand 
millions of dollars, or more than thirty times all the money 
in the country, bank-notes included; for the money in the 
country at the time was only about sixteen hundred millions 
of dollars. 



Walker's 3foney, Trade, and Industry, chapters x, xi, xii, 
has a good account of banking. See also his Political Econ- 
omy, advanced course, in Part VI, chapters xi and xii. An 
excellent account of banking in the United States is given 
by Mr. John Jay Knox in his reports as Comptroller of the 
Currency for 1875 and 1876, printed in the United States 
finance reports for those years. 

Bagehot's Lombard Street is instructive, as is also Gosch-_ 
en's Foreign JEhchanges. Gilbart's work The History, Prin- 
ciples, and Practice of Banking, published in two volumes 



CliEDir AXD THE IXSTRl'M KXTS OF CUKDIT. 203 

in I3ohirs Library, i.s iin iiitcrt'siing ])i-o(lu(li(jii written by 
a sufcessrul banker, Mr. (irilbart liavinsjc been lor many 3'ears 
Director and General iManuger of the great London and 
Westminster Bank. Morse on Hanks (ind BankliKj is a 
standard law-book on the snbjeet. 

The author has written an aeeonnt of German "People's 
Banks" in the Athixtic Monthly for February, 1881. It is 
entitled "German Co-operative Unions." Some useful sug- 
gestions about transfers of capital will be found in J. V>. 
Clark's Capiddand its Aarnihgs, a monograph of the American 
Economic Association, 1888. Read an article on clearing- 
houses in Johnson's Cyclopedia, by W. A. Camp, President 
of the New York Clearing-House. A good account of the 
London and New York clearing-houses is })ublished for 
tifty cents by the Financier Company, 40 Broad Street, 
New York. 



CHAPTER IV. 

THE REGULATION OF INTERNATIONAL COMMERCE. 

Objects of Regulation. — Nations have always regulated 
international commerce, and in an examination of history 
we discover three motives for this regulation. First, ancient 
nations, as the Greeks, Hebrews, and others, dreaded contact 
with foreigners, and regulated commerce in order to restrict 
it and reduce intercourse with other nations to a minimum. 
Second, nations have regulated international commerce in 
order to make it a source of revenue. Sometimes, as in 
Athens, of classical antiquity, exports and imports have been 
equally taxed. England at present taxes only imports, but 
taxes them with a view to a revenue for the support of the 
national government. Third, international commerce has 
been regulated by nations in o rder that the force of foreign 
competition might be weakened and the home producers en- 
couraged. This is usually accomplished by means of taxes 
on imported commodities when commodities of the same 
kind can be produced at home. These taxes are called pro- 
tective, and collectively they are spoken of as a protective 
tariff. As foreign commodities are liable to special taxes, it 
is supposed that thereby the domestic producers will receive 
special encouragement. They are " protected " against for- 
eign competitors. 

Protection. — It is intended in this chapter to discuss 
only regulation of international commerce oi the third kind. 
This regulation is called protectionism, and it will at once 
be recognized as a vast subject which could easily be made 
to fill several volumes like the present. It will here be possible 
merely to mention the main points in the controversy between 
those who believe in this kind of regulation, protectionists, 



REGULATION OF IXrKRXATIOXAL COMMERCE. 205 

am i tli o:<c who oppose it, fivt!-tj-;uler5 ; to comment briclly 
on some of these points; to bring forvvuril some general con- 
siderations wliiili ought not to be overlooked, and to say a 
word in conclusion in regard to tariff reform, on which all 
should unite. It is hoped thus to give a general view of the 
tariff controversy and to prepare the reader for further 
study of the subject in works mentioned at the close of the 
cha[)ler. 

Arguments of Protectionists. — It is argued in favor of 
protectionism that it promotes nationalism, and this is held 
to be a, good thing. It is urged that domestic trade draws 
the citi/.ens of a country together, wliile international trade is 
cosmopolitan and tends to their separation. l*rotectionists 
maintain further that protective tariffs are necessary in order 
to build up a diversified national industrial life. They claim 
tliat there exist in a new country like the United States 
many natural industiial advantages of which the inhabitants 
c;innot avail tbcniselves unless they are at least temporarily 
j)rotected. Government should, they say, foste r in fant in- 
dustries in order to develop) our natural resources and to 
produce diversity in industrial pursuits. The diversified- 
natural-industry argument and the protection-to-infant-indus- 
tries argument are thus supplementary. It is held that older 
nations with their superior capital and acquired skill will 
break down new pursuits in their infancy in order thereafter 
to have the market to themselves. Closely connected with 
this is an argument based on military grounds. It is often 
thought by ])rotectionists that industrial national independ- 
ence prepares a nation better for international war. The 
home- market argument for protection naturally follows. A 
home market is claimed to be superior because it is alleged 
to be a surer market. Producers are less likely to be de- 
prived of it by war and otlier emergencies. It is, moreover, 
urged that it is beneficial especially to the farmer, because 
it saves the e.vpenses of transportation of products to foreign 
lands. It has also been maintained by the distinguished 
American economist, Mr. Henry C. Carey, that a country 



206 AN INTRODUCTION TO POLITICAL ECONOMY. 

can remain permanently prosperous only on condition that. 
what is taken from the soil should be returned in manure 
and other kinds of fertilizers, and that this will be accom- 
plished only when products are consumed at home. 

Finally, protection has been advocated in the United States, 
especially since about 1840, when the labor movement began 
to assume prominence, onjthe ground that it has been the 
cause of higher wages in the United States than in European 
countries, and that it is necessary to maintain these high 
wages, which are said to be one main cause of our higher 
civilization. 

Arguments of Free-traders. — It is frequently al- 
leged that protective tariffs are a violation of an assumed 
natural right of every man to buy his goods where he will 
and to sell iiis products wherever he sees fit, untrarameled by 
human laws. This^argument, based on natural right, niay be 
dismissed as a " dogmatism in disguise," as an English 
jurist calls tliis sort of reasoning. High-sounding phrases 
are substituted for arguments, and under their cover opin- 
ions are thrust upon others without a real effort to substan- 
tiate them. How prove the natural right? It does not 
appeal to the majority of mankind as a tiling right in itself 
to buy and sell where one pleases, regardless of the common 
weal, and all history is against sucli exorbitant claims of 
individualism. It appears to most men that the public wel- 
fare must decide questions of this nature. Pi-ptection is thus 
called robbery, because.it violates an assumed natural right. 
It is much to be desired that ai-guments of this sort should 
cease to be heard so frequently. 

It has been claimed that tlie protective tariffs in the United 
States are unconstitutional. It would be most unfoi-tunate 
and anomalous if nowhere in our country were lodged the 
power to pass such regulations regarding international com- 
merce as might appear to be required for the promotion of 
the^ublic welfare. But this argument is idle. It does not 
correspond to the opinion of our best jui-ists, and it is very 
certain that we shall never see a Supreme Court in the United 



REOULATIOS OF L\TKHNAT10NAL COMMERCE. 207 

Stiiti's which will vciitiiro to proiioimcc protcctionisni uiicoti- 
etitutioii;il. Prutcutioiiism iius hccii culK-il socialism, b^iltliis 
e^nthet of m alignity is so gcia rally aiipliid to whatever a 
piTsoiij iiicoinpetiMit to argue a causo, does not hke tliat it 
■will scarcely terrify any one. 

The really able arguments of free-traders are those ^vhieh 
aim to show that proteetionism on the one hand fails toaeeom- 
plish its ends, or is needless for the aeconii)lisliinent of the 
ends it contemplates; on the other hand, actually does accom- 
plish positive hai in. It is denied that protectionism is neces- 
sary to foster nationalism, and modern experience presents 
strong testimony to support this denial. During tlie past 
fifty years international commerce has expanded marvelously, 
and international communication lias been in every way facil- 
itated, wliile at the same time we liave witnessed a remarka- 
ble growth of national feeling all over the civilized world. 

It is not clear that protective tariffs are necessary to pro- 
duce a diversity of pursuits in a great country like the United 
States. It is admitted that a purely agricultural nation is 
not likely to progress rapidly; but it would seem that our 
enornious extent of country, our varied climate, our natural 
gi£ts of all sorts, had in themselves amply provided for sulli- 
cient diversity, and it can scarcely be maintained that one or 
two pursuits, more or fewer, can be of impoitance. A vast 
number of pursuits means widely extended division of labor, 
and this is by no means an unqualified blessing. 

The argument for protection on the ground that it is a 
benefit to the laboring-man does not seem to the writer con- 
elusive. When this argument is analyzed and answered in 
detail, it is seen to involve a discussion of many complex 
economic problems. One consideration only will be suggested 
in this ]tlace. Labor comes in competition with labor, not 
with commodities. Labor desires commodities, and the more 
commodities it receives the better. Now, if it is desired to 
protect labor, a tax ought to be put on imported labor, and 
labor ought thus to be rendered scarce. If this were done, 
llienthose who desire labor wouM be obliged to pay heavily 



208 AN INTRODUCTION TO POLITICAL ECONOMY. 

for it, as actually happened in England after the "Black 
Death " in the fourteenth century had killed off a large part 
of the laboring population. If it is desired to benefit labor, 
it would seem to the author that after importation of labor 
has been taxed, and labor thus rendered scarce and dear, the 
importation of commodities should be encouraged in order 
that labor might secure an abundance of them cheaply. 

It is maintained by jreertraders that protectionism is espe- 
cially injurious because it diverts industry from a moi'e to a 
less productive channel. It is held that industrial forces, if 
let alone, will seek those fields which yield largest returns, 
and that if government artificially induces them to take an- 
other dii-ection the factors of production become less fruit < 
ful and the national economy suffers. 

It is, moreover, alleged that protectionism fosters monop- 
olies, because it shuts off international competition. Recent 
combinations of domestic producei's, as seen in trusts, which 
control so large a portion of the industrial field, would seem 
to support this allegation. It is certainly taken for granted 
that if foreign competition is shut off or lessened home pro- 
ducers will still compete. That has been one of the funda- 
mental arguments of protectionists, but now we find home 
producers combining to put an end to home competition. It 
is scarcely too much to call this an abuse of the principle of 
protection. 

Some General Considerations ought to be kept in mind 
in tariff discussions. First, its importance is exaggerated. We 
find a country like England j^rosperous under free trade; we 
find countries like Fran ce and the United States prosperous 
under protection. It is of real but not of vital importance. 
Domestic trade exceeds in its aggregate amount in the United 
States almost immeasurably foreign trade. The domestic 
t rade of the Mississippi valley alone is far greater than our 
entire foreign commerce. It is much to be dt'sired that other 
economic questions should be more discussed. Local politi- 
cians dispute about the tariff excitedly, and divert attention 
from local abuses. The proper management of gas-works, 



REGULATION OF JNTKliXATIONAL COMMERCK 209 

water supply, electric li<j;litin<j^, and street-cars, is of more iin: 
]>ortaiice to the people of New York, J>oslou, or Ualtimore 
than tiie tariff coiitroycrsy, but how imich do we hear about 
these local questions from our politicians? The place to 
b cL^in reforms is riglit at liome, at our own doors. When 
we have reformed the greater abuses of our municipal gov- 
ernments, we shall very well know how to reform the lesser 
evils at Washington. 

Se cond , statistics about a country's ])ros[)erity, urged either 
for or against protection, are, as usually presented, of no 
value. Thetariffpoiicy of modern countries has been a minor 
factor in their industrial life. Inventions and discoveries, es- 
pecially the apjilicatiiin of steam, to industry, and the growth 
of intelligcncej have^been the chief forces which have made 
^uch astounding additions to the wealth of the world during 
the nineteenth century. 

Third , badas it maj'^ be in many respects, the American 
tariff is an historical growth, and during the century of our 
national existence it has taken deep root. It has become part 
of our life, and it cannot be suddenly eradicated with im- 
punity If it is true that American labor would be better off 
wuhout itT^ ^oes not follow that it ought to be removed 
suddenly in tlie interests of American labor. If an indus- 
trial growth is abnoimal, it is none the less true that adjust- 
ment to normal conditions is a ])ainful process and should be 
conducted cautiously. Displacements of labor and capital 
cause suffering and loss. At the same time, it is impossible 
to tolerate permanently a bad condition of things, ami while 
rashness is to be deprecated progress should be insisted on. 

Our capital has become enormous. Skill has been devel- 
oped in our country, and it_js not clear that our industrial 
leaders are not quite capable of holding their own with the 
world^in a free market. The fact that labor receives a large 
share of the product, if such is the case, does not render labor 
and the other factors of production less fruitful. Does the 
American farmer abandon the cultivation of land because 
out of a hundred bushels of wheat crrown he must fjive the 



210 AN INTRODUGTION TO POLITICAL ECONOMY. 

American laborer, say, fifty, while his European rival gives 
only thirty bushels out of a hundred ? He still has fifty 
bushels left. 

This is only a small part of the subject of protectionism and 
free trade, a very small part, but it is trusted that it will 
prove suggestive, and that no one will terminate with this 
his tarifi' studies. 

It may be said in conclusion that reform of the tariff is 
possible both from a protectionist and from a free trade 
stand-jjoint. W hat is desiied is simplicity in our tariff 
system, which is now complex. No article should be taxed 
unless there is some good reason for it. Other things being 
equal, the fewer articles taxed the better. Reductions in du- 
ties wherever practicable should be made. Specific duties, 
that is, duties which are calculated by weight, measurement, 
or count, as simple and less provocative of temptation, ought 
to be substituted in every possible case for ad valorem du- 
ties, that is, duties which are a percentage on value, a thing 
so hard to be determined. 



List's National System of Political Economy presents 
protectionism ably. Taussig's Tariff History of the United 
States is the work of a fair-minded free-trader. Patten's 
Premises of Political Economy advocates protectionism from 
a new stand-point, and is worthy of consideration. Thomp- 
son's Protection to Home Industry is a popular presentation 
of protection, in four lectures. Ely's ProUems of To-Day is 
a simple and easily grasped argument for tariff reform. 
Special attention in this work is given to the balance-of-trade 
theory. 



PART IV. 

DISTRIBUTION. 



CHAPTER I. 

INTRODUCTORY. 

It has already been remarked that the pifld oction an d the 
distribution of the annual income of society cannot bcsjiarply 
sejnvraicd, and the reader must have observed that more or 
less has been said about the four parts into which the prod- 
ucts of industry are usually divided; namely, wages, interest, 
profits, and ren_t. Taxe s may, i>e'i-lia|is, be i-cgardcd as a lifth 
part into which the annual incume of society is divided, and 
we may treat taxes as the part which society, organized as 
State^ receives for its participation in production. But, if 
this view is taken, we have a fifth part peculiar in so many 
resi)ects that it is desirable to treat it neither under jiroduc- 
tion nor distribution. 

All of distribution might undoubtedly be considered under 
the general heading production, but on the other hand it is 
frequently asserted that distnbution is " the true center of 
all economic inquiries," and it would be possible to treat the 
whi'le (if ]ir(M]uction from the stand-point of distribution. 
The truih is tliat these old traditional divisions of our sub- 
ject-matter indicate different points of view, and on this ac- 
count it seems desirable to retain them. When we pass 
from production to distribution we do not enter a new field, 
but we look at an old field of investigation from a new point 
of view. 

We have in tliis "Part" of political economy to discuss 
chiefly either actual or contemplated self-conscious social ef- 
forts to control the distribution of the income of industry 
among families and individuals, and, save in tlie first two 
chapters, only secondarily that disti'ibution of products which 
flows as it were spontaneously from productive processes. It 



214 AN INTR OB UGTION TO POLITICAL ECONOMY. 

is, however, necessary to add a few remarks to what has al- 
ready been said about property, that fundamental institution 
in distribution, and about wages, interest, profits, and rent, 
before we pass on to subsequent chapters. 

Property. — By_private property we mean an exclusive | 
right or control of a i^erson over an economic good,, and \ 
sometimes the economic good itself over which this exclusive ' 
rights is_ exercised. It is of the nature of property that it 
carries with it the power of exclusion within its own sphere, 
but not that it is absolute. Such a thing as an absolute right 
of property never has existed and never will exist. The 
Roman law defined property as ^'■jris utendi vel ahutendi re," 
the right to use or consume a thing. Now, abuteyidi has by 
some been supposed to mean abuse, and it has been asserted 
that the Roman law gave a man the right to abuse his prop- 
erty, but it has been shown that ahutendi in this place means 
*' use up," or consume, and the Roman law conferred no such 
outrageous right on a proprietor. All codes will be searched 
in vain for an unlimited right of property. There are two 
elements in property, the social a-iid the individual, and 
sometimes the one is more prominent, sometimes the other. 
Sometimes the one is allowed to encroach unjustly on the 
otiier. John Stuart Mill mentions as such an encroachment 
the assumed right of a landed proprietor to exclude the pub- 
lic from the contemplation of a great natural wonder. This 
was felt to be so anomalous in the case of the land surround- 
ing Niagara Falls that New York State and Canada bought 
out the private owners and made of the land public parks. 
The general public has had from time immemorial the right 
to use as pleasure grounds m:iny forests in Germany, and 
Avhen in Prussia this right was somewhat restricted a few 
years ago it was felt by many persons to be an unjust en- 
croachment of the individual element on the social. It is 
only within its own sphere that the right of property is ex- 
1 elusive. The old Teutonic idea of property, appropriate to 
England and America, makes the social element prominent, 
while the Roman law, with its negative characteristics, tends 



fXTR OD UCTOR Y. 215 

/to minimize tlie social element and exaggerate tlie imli- 
|vidual.) 

» Every clianixe in the laws of property changes to some ex- 
Itent the nioile of production of economic goods, but to still 
Igrcater extent and more immediately does it alter their dis- 
\tribution. What is needed is flexibility in our laws of 
property so that the conception may be gradually altered in 
fa conservative spirit in order to meet the demands of existing 
jeconomic and social civilization. Inflexibility is destructive, 
and tends to revolution. 

Rent. — Kent has been defined as t he annu al return of land 
inJtseU'j, When one person i)arts for valuable consideration • 
with the use of land what he receives is called rent, but the 
v jtlue of the use of it is rent when he retains it and uses it 
h imself. Now, Avhat determines the amount of rent ? Land 
of various degrees of fertility is cultivated, and the poorest 
l iiid cultiv ated is said to be on the " margin of cultivation," 
T his is land which pays no rent. What is received comes 
sin^ply as a return on capital and labor. An abundance of 
land can be found which pays no rent. It "just £ays" to 
cultivate it, and that is all. Xow the greater part of land is 
either better situated or it is more fertile. It more than 
"just |»ays" to cultivate this land, and the difference between 
what this land yields and land on the margin of cultivation 
i s the amount of r ent. It is on this account that rent is said 
not to enter into prices. When we buy a bushel of potatoes 
we pay the same whether they are grown on poor or on fer- 
tilejand, whether grown within half a mile of the market or 
tive hundred miles away, provided the potatoes are equally 
good. But it is obvious that the cost of growing a bushel of . 
potatoes varies widely. It_is the cost under the least 
advantageous circumstances which determines price. Price 
must be high enough to cover this cost or the land will go out 1 
of cultivation, just as poor land has gone out of cultivation 
in England since our West was by railways rendered accessi- 
ble. When the potatoes are grown under favorable circum- 
stances t7ie price more than covers cost, and a surplus is left \ 
10 



t 



216 AN INTRODUCTION TO POLITlGAL ECONOMY. 

iwhich is called rent. If^ rent paid were abolished, price 
would not be altered. Abk any tenant if he would lower 
the price of potatoes if his landlord would release him ivony^^ 
paying rent. 

It is not strictly accurate to say that rent does not enter 
into price. A part of price usually paid is rent, but price is 
'not altered by rent-payments. Q^alues of things exchanged 
\ are determined by their production under the least favora- 
ible circumstances under which they can be permanently pro- 
Iduced. jThose3!:hQ produce under more favorable circum- 
stances have a surplus. Pure economic rent is not return 
for capital, that is, for improvements, not at any rate until 
they have become inseparably and undistinguishably blended 
I with tiie land. Re turn ?or improvements is, strictly speak- 
ling, interest and profits. It is sometimes said land will not 
sell for what the improvements cost. The effect of improve- 
ments cannot last indefinitely, and they must be paid for 
year by year, and entirely paid for within an often very lim- 
ited period, or they do not prove remunerative, as frequently 
happens. In any section of our own East, where it is said 
that there is no economic rent, the reader will be able to find 
unimproved land for which people will gladly pay rent. At 
the same time it is hard to distinguish pure economic rent 
of agricultural land from profits, and perhaps impracticable 
to carry out any policy which would require this. It is an 
easy matter in cities to distinguish rent from profits, and it 
is done every day in cities like London, New York, Balti- 
more, and Boston, Land can readily be bought separately 
from improvements or improvements without the land in 
cities. Whatever surplus land yields above returns on labor 
and cajjital is rent, and as city lots are not cultivated, what- 
ever is received per annum for them is pure rent. It__is 
usually called ground-rent. " %/ 

Interest.— Perhaps the broadest generalization wich we 
can discover with respect to interest is this: The rate paid 
for capital lent„ to others tends _.to become thnt percentage 
of-the capital which will equalize the capital seeking invest- 



IXTRODUCTORY. 217 

ment and the amoiinl tlciiiainlcil. It' more is odrrcil thin 
peojilo will take al the cxi.stiiig rate of interest the rate of 
interest Nvill full, unless some other forces, like new oj)|)or- 
tunities for investment, intervene. The amount demanded 
will, of course, depend on opportunities for investment, and 
the friiitfiilness of investments, ask fixes the maximum 
amount which can be paid, will have a large intluenee in de- 
terminiuir the rate of interest. 

_„ .O - - 

Int erest covers risk and must vary with n>^ Interest is 
also governed in a large part of transactions in the United 
States, especially in rural districts and small towns and cities, 
by positive law. Commands of Mosaic legislation Ibrbid- 
ding interest, and similar legislation in the Middle Ages, while 
never altogether successful, were powerful, and, though they 
finally broke down, long exercised an intiuence. A further 
treatment of all these and many other considerations must 
be omitted on account of the limitations of space. 

Profits. — It may be said that whatever is left after pay- 
ing interest, rent, and wages is profits. It is the return 
which is received for the organization and management of a 
business at one's risk. It is, strictly speaking, not " wages 
of superintendence," lor that may be deducted, and often is 
deducted. 

We have already something to guide us in determining 
rent and interest, and in the next chapter suggestions will be 
offered to help the student to determine what part uf the 
product of industry will f;dl to labor in wages. 

Profits and interest are often, in practical business, 
" lumped " together. They are not separated, but the 
manufacturer or merchant frequently speaks of his entire 
income, interest on his mone}', his own wages and profits, 
as his profits, althougli the more careful discriminate be- 
tween the various elements of income. Profits and interest 
are calculated in percentages. We speak of profit of ten per 
cent, or twenty per cent., more or less, as the case may be. 
It means that the returns on what is invested \)v:n- that 
ratio to the capital invested. If capital is of the value of 



21S AN INTRODUCTION TO POLITICAL ECONOMY. 

one hundred dollars and profits are ten per cent., of course 
profits will be ten dollars. This gives no proportion be- 
tween what labor receives and what capital receives, as has 
been absurdly supposed. It has even been said if capital 
receives ten per cent, labor receives ninety. It is strange 
that any one could believe any thing so ridiculous. This 
would only be true in case the return on the capital and 
labor in profits and wages each year always equaled the 
capital invested; whereas these returns are sometimes noth- 
ing, sometimes forty-tive per cent, of the amount of capi- 
tal, as happened in a large establishment with a capital of 
one million dollars in 1888, as the author happens to know, 
and sometimes the profits alone exceed the capital, as hap- 
pened in the case of a railway construction company in re- 
gard to wliich the author has trustworthy information. The 
percentage of proHts and of interest, either separately or to- 
gether, tells us nothing about the distribution of products 
between labor and capital. If we know that interest and 
profits have fallen, this also tells us nothing about the dis- 
tribution of products between labor and capital. We do 
not even know that capital and enterprise are receiving a 
smaller relative share than formerly. This can only be shown 
when it has been demonstrated that capital has not increased 
in so gi'eat a proportion as the rate of interest or profits has 
fallen. Let us for the present, therefore, " lump " profits 
and interest and call both profits, and call the entire return 
profits on capital, although, strictly speaking, part of it is 
the share of the entrepreneur, and is reward for " enterprise." 
If profits have fallen from ten to five per cent, and capital 
has quadrupled in amount, profits have increased in their 
total amount one hundred per cent. 

Capital and Capitalization. — We must also distinguish 
between capital invested and capitalization. Capitalization 
means the amount at which a property is valued, and it may 
be ten times the cost of capital actually invested. When 
we speak of profits as being ten per cent, or five per cent. 
we mean profits on free or disposable capital, and this rate 



iXTnoDnrnin'. 210 

dopculs on opportm.iti.s 1\„. ,,n..lMrti.>n whic-h arc still open 
not .hose wind. l.av. alrc.uly Ihhm. s,-!...!. Lw u. suppose 
hHttho rolnrnsoM .nvestnu-nts still ..p,.,, to ail are about 
ten per cent but that the returns to a telephone eon.pany 
or an ek.-tnc l.ghting company winch has actually investe.l 
one hun.lre.1 thousan.l cloll..u-s is one hundred thousand dol- 
lars ; the nndertal<ing will be capitalized at one million 

tri«r/H '•' '' "'"''' ''" "'''''^ '■■^'^' "^ l"-^"^-^; -''J ^^ 
p ohts tall on new .nvestments open to all, capitalisation of 

old and lucrative enterprises rises in proportion, althour^h no 
new capital is invested. One familiar form which this^takes 
IS stock-watering," but it is also seen in higher prices If 
a house yields one thousand dollars a year, and ten per lent 
IS a fan- return for house property, it will be valued at ten 
thousand dollars; but if profits fall, and five per cent, is con- 
sidered a good return, it will be vahied at twenty thousand. 
Ihis increase ot capitalization is sometimes an unconscious 
process, and a man will at times feel poorer when lie is re- 
ceiving hve per cent, on his capitalization of an investment 
than when he was receiving ten per cent., although his capi- 
talization has quadrupled without any additional investmint 

^ Profits of Monopolies.-It issaid profits tend to equality 
Tins inay be true of pure interest in a large, well-suppliJd 
ma. ke . J here are in such n,arkets constant fluctuations and 
a constant tendency toward a level-a level always chan..- 
ing, a least slightly. When the flow of capital is perfectfy 
free the same tendency may be observed with respect to 

vlu h ^^e may ca 1 economic friction render the movement 
tOKird equality slower and less certain. The laws of com- 
petition bring about this tendency toward equality. If one 
soon a? t"; "'""^ is receiving exceptionally high profits, as 
soon as it becomes known other entrepreneurs will direct 
their capital u.to this channel, and this will tend to make 
various industries equdly attractive-to reduce them to a 
le>el. Of course, within each kind of industry profits will 



220 AN INTRODUCTION TO POLITICAL ECONOMY. 

vary accoi'ding to situation, and more particularly according 
to the capacity of the entrepreneur. All this supposes, how- 
ever, a free flow of capital, and it is a peculiarity of mod- 
ern industrial life that in an ever-increasing proportion of 
tlie industrial field — that represented by natural monopolies 
and artificial monopolies — the flow of capital is not free, al- 
though outside of these favored undertakings competition is 
continually increasing in severity. While the ordinary mer- 
chant or manufacturer may rejoice to receive five or ten per 
cent., much capital is invested which yields, not on capitaliza- 
tion but on capital, twenty, thirty, forty, and even one hun- 
dred per cent. This brings us to one aspect of the so-called 
great " social question," and it shows how far those are from 
having grasped its full significance who reduce it merely to 
a labor problem. It is quite as much the merchant's, the 
manufacturer's, the lawyer's, the teacher's problem. It is 
what its name, " social," indicates, the problem not of any 
class, but of society. 

On rent, read Mill's Political Economy (unabridged edi- 
tion) Book II, chap. xvi. Those who have access to the New 
York Independent may find some suggestions in five articles 
on Land., Labor^ and Taxation, by the author, which ap- 
peared December 1, 8, 15, 22, 29, 1887. 



CHAPTER 11. 

WAGKS AND TllK WAGKSSVSTEM. 

The " Standard of Life." — It has been tlie oiiinion of 
inaiiy of tlie ablest iK)lilic.il economists for over a century 
that what is technically called standard of life, or standard 
ot' co))ifort, determines the washes of labor. This means that 
laborers have an habitual standard of life, a certain style of 
life, and that what they receive as wages enables them on 
the average just to keep up this standard, but to do no more. 
They are able to occupy such a sort of dwelling, to wear 
such clothes, to eat such food, and generally to do such things 
as this standard requires, but no more. This has also been 
called the iron law of wages. There is so overwhelming an 
array of facts, gathered from widely separated countries and 
from periods so distant from one another, which confirm this 
conclusion, that it is difficult to resist it. The iron law of 
wages is not a law like a law in pliysics, but it expresses in 
a rough sort of way a powerful tendency. Among the strik- 
ing evidences of the trutli of the theory of the standard of 
life as the norm for wages, the fact is especially noteworthy 
that as a rule it seems to fail to benefit the laboring popula- 
tions on the whole and for any length of time for the wii'e 
and children to earn money, even apart from all other con- 
siderations than money-getting. The world over, w hen it 
becomes customary for the wife, or wife and children, to work 
in factories, it very soon becomes necessary for them to do 
so to support the family. The wages of the head of the 
family antl the earnings of the entire family as before just 
maintain the standard of comfort among that class of the 
])opidaiion. Professor E. W. Bemis has called attention to 
the fact that in the textile industries of Rhode Island and 



222 AN INTRODUCTION- TO POLITICAL ECONOMY. 

eastern Connecticut, where the women and diildren work, the 
earnings of the entire family are no larger than in other in- 
dustries, like those in metal, in western Connecticut, where 
only the man works. Similarly an increase in the length of 
the working day confers no benefit, while it has yet to be 
shown that a reduction of the lengtli of the working day ever, 
in any part of the world, reduced wages permanently. On 
the contrary, it is more likely to raise the standard of life 
and to raise wages ultimately. Many important conclusions 
flow from this principle, which cannot be elaborated in this 
place. It was probably on account of a conviction of the es- 
sential validity of this law that Hon. A. S. Hewitt, when 
Mayor of New York city, refused his sanction to an appar- 
ently phil.mthropic scheme to establish lunch stands in dif- 
ferent parts of New York where something to eat could be 
obtained for a cent. Probably most political economists 
would agree with Mr. Hewitt in thinking that it would in 
the end do more harm than good. At any rate, simply to 
reduce the cost of living will in itself never render men 
really prosperous. 

This tendency, when called the iron law of wages, has been 
used as a means of agitation to provoke discontent, but it ap- 
plies in a rough kind of way to all classes, and to judges and 
college professors quite as relentlessly as to workingmen, 
perhaps even more so. If the standard is what it should be, 
what more can be asked than that we should be able to main- 
tain it? It should include provision for all real needs and 
provision for accidents ; future emergencies, disability on 
account of old age, and the like should be included. A deposit 
in the savings bank and insurance policies ought to be a part 
of the habitual standard of life. The standard is unfortu- 
nately not what it should be, but it can be raised. It has been 
raised in the past, and the true kind of social reform cannot be 
brought about unless it is raised still further, and the more 
nearly it becomes in all respects what it ought to be the nearer 
we are to our goal — a goal which, like all ethical goals, we 
can forever approach but never reach. Perfection is infinite. 



WAGES A. Xn Till': WAnKS-SYSTEM. 223 

Tlie standiutl of lift' li;is :it tiiiu's fiilloii, and it at times re- 
quiros a troiiu'iitloiis cilDrt to niaiiilaiii it, ami a still initjlil- 
ii r liVort to raise it. It iciiuircs now a struggle for our la- 
boring rlassos to niainiaiu it against the onslaught of cheap 
and degradoil labor pouring in upon us from Kuiope, and un- 
til loiently from Asia also. It is on this account d('siral)le 
to restrict immigration to some extent, for a lower standard 
means a lower civilization. The struggle to maintain a 
standard of life, when jiot too severe, has l^eneficial results 
which ought not to be overlooked. When the struggle is 
successful it results in im-reased efficiency, and is a spur which 
human nature, when too sluggish, needs. Sometimes the 
struggle has this result in the United States : a large pro- 
portion of native Americans abandon pursuits invaded by 
those with a lower stamlard of life, and attempt elsewhere 
to keep their standard. A part of these displaced succeed, 
and attain a much higher standard than the old. Others 
cannot make the ascent and become a dissatisKed element in 
society. 

The Law of Distribution. — All this is in perfect har- 
mony with what has been previously said. In the struggle 
for the division of products the most slowly increasing 
factor is at an advantage. When the product is once 
given, the more one takes the less is left for others. If you 
take three quarters of the loaf, only one quarter is left for 
me, and no fine phrases can alter this fact. The struggle 
m-ide by interest and rent seems to be 2)owerful — a quiet, 
regular sort of struggle, obeying strong tendencies — while 
the active, noisy, and at times violent struggle takes place 
when it comes to dividing what is left afier paying rent and 
interest between labor and capital. Now the standard of 
comfort means this: that population will not increase beyond 
the point where the struggle can be maintained. If the 
struggle begins to be too severe few peoj)le will marry, or 
those who do niairy will be older when they marry, or on 
account of increased want the mortality of children, always 
terrific among the poor, will increase; and thus in one way 
lu* 



1 



)< 



224 AN INTRODUCTION TO POLITICAL ECONOMY. 

or another the factor labor will increase more slowly. Other- 
wise one of two things must happen: either new openings 
for labor must be found or the standard must fall. 

Differences of Wages. — We have different standards 
of life in different occupations, consequently differences of 
remuneration, whether paid as wages or salaries. What 
^letevmines differences of wages of various occupations ? 
All sorts of fanciful replies have been given. The differ- 
ences are largely historical. We must go back to a man's 
grandfather or great-grandfather. Occupations where re- 
muneration is high are so difficult to enter that few are able 
to surmount the difficulties. Peculiar and rare qualities are 
required ; opportunities which come i'rom favorable environ- 
ment; an expensive training, which few parents are able and 
at the same time willing to give. What one is depends 
chiefly on one's parents, and, as has been often said, one has 
no voice in the selection of one's parents. We who have 
been blessed in this respect ought to feel that we owe a 
special duty to humanity. 

f Adam Smith enumerated the following five cause-S, for the 
! differences of wages in different employments: First, the 
agreeableness or disagreeableness of the employments them- 
selves. Secondly, the costliness or cheapness or the diffi- 
iculty a,nd expense of learning: them. Thirdly, tlie constancy 
j or inconstancy of employment in them. Fourthly, the 
small or great tinist jvhjch must be reposed in those who 
j exercise tliem ; and fifthly, the prjoliabilityor improbability 
' of success in them.. All this presupposes that grown men, 
perfectly free to select their occupations — free not 
merely so far as the law is concerned, but free so far as 
their command of resources is concerned — look over 
the entire industrial field and choose their employment. A 
recent English writer, pointing out that occupations are se- 
lected by parents very generally, adds : '(^Vhen a person is 
one of the large number who have been in childhood badly 
nourished, badly housed, badly clothed, badly educated, 
: and not at all trained to any particular occupation, let no 



M'A(;h'S AM) Till-: WAdKS-SYSTKM. 225 

oiii' piato to liim o( liis frcH'(U)iii to flmoso what otuupatioii 
In- thinks |»ro|ier. IIis_legal fioedom to_chopse many occu- 
pjitjons is :il)out as miu-li use to liim as liis k'^al iieetlurn lo 
% \yitli w'mgs m Iju^AXir" Nevertln^-k'ss, witli proper quali- 
tiealions, what Adam Smith says explaiiis many difforences 
in watj^es. It is left as an exercise to readi-rs and students 
of this book to discover by observation, carefid ami long- 
eontimied, the real amount of truth in Adam Smith's causes 
for ilillerences of wages in different emi)loyments. 
-y. Piece-Work. — Wages are paid by time or by the piece. 
A day, week, or month is paid for at an agreed price, or a 
price is jtaid for each piece of work done, as for each bushel 
of corn husked. Payment by tlie piece would seem to be 
fairer for all parties, but abuses have in manufactures so 
generally been connected with it that it is opposed by many 
intelligent artisans, and car_eful political economists will_be 
slow to give piece-work unqualified approval. Physicians 
testify that by producing feverish over- exert ion it has in 
certain quarters shortened average life materially, and there 
is a jiroverb in Saxony, in Genuany, to the eftect that piece- 
work is work that murders. Piece-work has frequently been 
used to break down regulations and laws limiting the time 
of work, and more frequently still to biing about a reduc- 
tion of wages. The ^yQrkers strain every muscle and nerve 
to earn high wages, and aftcr_ ajno^h rate_of speed has been 
secured the j»rice per ])iece is reduced, sometimes lime and 
ti'lie again. Peculiarly cruel and aggravating cases of this 
kind have come under the writer's observation. When not 
connected with abuses payment by piece has many advan- 
ta-.'es, and is at times ])referable for all parties. 

The Sliding Scale.— A sliding scale of wages has been 
introduced by a powerful trades-union, the "Amalgamated 
Associ ation of Iron and Steel Workers," chiefly in Pennsyl- 
vania, and it appeaJi-i-LoLJiay^. g^iven geueraL^iitisfaclion and 
to have kept the industrial peace better than the ordinary 
wages system. Wa<i:e&_^aj; y with selling p rice__of the prod- 
uct, and thus labor s hares to some exten t in the prosperity 



^5l AX INTRODUCTION TO POLITICAL ECONOMY. 

of capital. The slidino;^_scale is known elsewhere in this 
country and in England, and it has met with a good deal of 
favor from economic writers. 

Arbitration and Conciliation have accomplished 
much for the preservation of industrial peace wherever thor- 
oughly and honestly tried. Sometimes voluntary boards are 
appointed by employers and employed to adjust differences, 
and sometimes they are appointed by public authorities. 
New York State and Massachusetts have permanent boaids 
of arbitration, and both have accomplished good. The New 
York board, however, appears to have inadequate powers, but 
the MassachusettsJiQaaid, which must be summoned by local 
authorities and has power to get at all the facts, has accoj a- 
plished in a short space of time wonderful things. It is mor e 
eflEectiye than^ police or militia, and less expensive for pre- 
serving peace in the excitement connected naturally with 
wages controversies. 

Factory Inspection,— Labor legislation, honestly con- 
ceived, and properly enforced by factory inspectors, has been 
productive of incalculable good. England is the model coun- 
try in this respect, and Massachusetts, in our own Union is 
the banner State in labor legislation. Labor legislation 
should aim to keep children away from work and in schools, 
to restrict to its lowest terms the employment of women, to 
limit the working-day for married women and to give them 
a Saturday half-holiday, to shorten the length of the work- 
ing-day for young persons under eighteen to the length pre- 
scribed by physiology and hygiene and to give them also 
a Saturday half-holiday, to compel employers to fence in 
dangerous machinery ami otherwise guard against accident, 
and to render them i)ecMmiarily responsible for accidents to 
employes by employers' liability acts. We have here a goal, 
and no country ever yet suffered in international competition 
by approximations to it. England, which has come nearest to 
it, is the most dreaded country on the globe in international 
competition, and Massachusetts, which has gone farther than 
any one of our States in this direction, is one of the richest 



WAdh'S AXl) 77//; WAOlCS-.sysTK.U. 22? 

ill the I'liidii. Kc'diioiiiists say thai England's action lias 
given lu'i- a stronger ami better laboring pupulation, and lias 
established Iier industrial supremacy upon a lirnier founda- 
tion than ever. 



Road Clark and Wood on wages, in the monograph of 
Anieric-an Economic Association entitled Contribiitlojis to the 
Wages Question; also Patten on IStabillty of Prices, the 
same i)ublishers. Advanced students who read German 
will find the treatment of wages by Professor von Ihering, 
the distinguished jurist of Gottingen, unusually suggestive. 
It is found in chapter ix of the second edition of volume i 
of Ids Ziceck iin Hec/it. On arbitration and conciliation 
read Joseph D. Weeks's ]>amphlet, Labor D'lffere^ices ami 
Their iSettleDieitt, New York, 188G, Society for Political Edu- 
cation ; also the excellent work on Industrial Peace^ L. L. 
F. R. Price, with preface by Professor Marshall. Also read 
article by the author in North American Jieview for 188G. 
The best account of English factory legislation is a fasci- 
nating work, The Life and Work of the Earl oj Shaftes- 
bury, by Hodder. 



CHAPTER III. 

LABOR ORGANIZATIONS. 

The old mediaeval guilds were organizations of all the 
factors of production. Employers and employed united in 
one body regulated production, but the control rested chiefly 
with the masters. Modern labor organizations embrace, as 
a rule, only one of the factors, the employed, and their pur- 
pose is to promote the interests of this one factor whenever 
those interests clash with those of the employers. 

Trades-Unions and Knights of Labor. — Labor or- 
~f ganizations may_be_divided j^nto two classes, and as a mat- 
ter of fact they are so divided to-day in the United States. 
These classes are the trndes-unions and the Knights of 
Labor. The trades-ujiigns are primarily organizations _Qf 
skilled artisans. According to the old trades-union idea 
each craft should be organized by itself. The Kniglits. 
of Labor are, according to their original idea, oj:ganizations of 
employes both skilled and unskilled, regardless of trade. They 
aimed to break down the barriers to common action found 
in differences of occupation. The Knights of Labor have 
also taken a broader outlook upon society, and have soughtjfco 
accomplish greater things than the trades-unions. The trad es- 
unions presuppose a difference, of interest between employers 
and employed. They are, as it were, a fighting body. This 
divergence of interests exists, and fighting bodies often pre- 
serve peace. " If you would have peace, prepare for war," is 
an old maxim, and struggles between labor and ca])ital have 
been most violent in Belgium, where no efficient organiza- 
tions have existed. But the Knjghts of Labor have looked 
beyond a period of conflict to a union of productive factors 
which should be peaceful. They hope in some way t o see 



lAnon oncAXizATioxs. 229 

lol.oj: jiiul capiuil uiulcd in the samo lian.ls. Tlicy desiro 
tojnakcLJ-'apitalisU .oliab()rer>?, and t.jjjrgaiiizo ^nrpduction 
on a oo-oi)orative basis. It is donhllcss on_acuou.i»t of this 
ultjmalcaiin that llu-y a.linit onii.ioyors^ of^whom many 
are members, and also tl>e i>rot'os.siuiial cdasses, a considerable 
nTnnber of teac-hors, journalists, and preachers being also 
members. The Knights of Labor ariL.in_soJiy a returnjto.^ 
the principle of the old guild organization. 

Knights of Labor and trades-unions have both modified then- 
ori<rinal programmes. The trades-unions have united in larger 
fedt'ral or.^a'iiizations, first in the central labor unions of our 
cities, antf later in the national body, the Anierican Fedcra- 
ti«m of Labor. This national body has also made provision 
for the organization of unskilled working-men, and for local 
unions of working-men of ditierent trades where those engaged 
in each trade are too few lor separate organization. The 
Knights of Labor have, on the other hand, organized sepa- 
raiefy a considerable number of trades in what are often 
called " district assemblies," and have thus recognized more 
largely than they were at first inclined to do the principle 
of federation with sejiarate crafts as a basis. 

A b itter c ontest between the Knights of Labor and trades- 
unions has been .w^S"-'^!. ^.i't there is now some evidence of 
an" effective desire for harmonious co-operation in_tliej3rose- 
cution of common aims. 

(Jrowth of Labor Organizations.— It has been re- 
cently estimated that a million working-men in the United 
States are members of labor organizations.* The number, 
of course, varies. A period of prosperity for the organiza- 
tions is generally followed by one of reaction, and the present 
seems to be a continuation of the period of reaction which 
began early in 188G, perhaps in 1885. Reaction always 
tenninates in a new advance, and thus far in the United 
States each new advance has carried the labor organizations 
farther forward than ever before. '- 

* See Dr. K. W. Bcmis's vaUialile article on workinp-men in the United 
Sutes \u the Ainericau edition of llie I'ncyclujx^dia BriUinuka. 



230 AX IXTR OB UCTJON TO POLITICAL ECONOMY. 

Farmers' Organizations.— Two powerfuJ. organizations 
of farmers, the PatmiJS oi Husbandry and the National 
Farniers' Alliance, are more like the old guilds in this, that 
they are organizations of independent producers designed to 
protect their interests against attacks from other social 
classes. Recent years have, however, witnessed an approach 
of labor organizations and farmers' organizations to each 
other for the attainment especially of common political aims. 

Labor Organizations a Natural G-rowth, — Labor 
organizations ai'e not forced products. They have grown 
up almost spontaneously. They have arisen naturally out 
of modern industrial conditions. Wherever capital is a 
separate factor in production, and is organized on a large 
scale, labor inevitably organizes itself sooner or later in order 
that it may stand on an equal footing and make labor con- 
tracts advantageously for itself. Let us suppose one capital- 
ist employs a thousand men. If these men are not organ- 
ized each man individually treats with all the capital in the 
establishment. All the capital is rej^resented by one man, 
but one laborer represents but a thousandth part of the labor 
force, and he is not in a position of equality. The laborers 
therefore unite their labor, and speaking through one repre- 
sentative place all the labor against all the capital. This is 
something which so naturally suggests itself that we find 
labor organizations in all modern lands. 

Opposition to Labor Organizations. — Labor organ- 
izations met at first with violent opposition, and it cannot 
be said that in their earlier stages or even in their later 
growth this opposition is by any means groundless. How- 
ever, whatever bad traits naturally characterize labor oi*- 
ganizations are aggravated so long as they are obliged to 
struggle for existence. Whenever the fact of their right to 
exist is frankly acknowledged, and employers, ceasing to per- 
secute them or their officials, recognize the man who treats 
in a representative capacity for the sale of the commodity 
labor as courteously as they would an agent for the sale of 
corn or wheat; finally, whenever courts cease to hj.rass thern 



LABOn ORGAXIZATIOXS. 231 

wltli legal cliicniierv, ascouits long did in Kiij^huid, tlit'V tend 
to become strung and conservative. The lad is undoubted 
that most serious abuses and outrages have attended the prog- 
ress of labor organizations, but they have simply exhibited 
weaknesses of sinful human naiure and weaknesses which have 
been observed in more frightful manifestations in those other 
orixanizations, nevertheless excellent, which we call Church 
ami State. The true course is, to recognize the beneficence of 
the principle of oiganization and to contend otdy against 
abuses. It can scarcely be too much to say that this is the 
opinit)!! of nearly all competent observers in England, Ger- 
many, and the United States. The following quotation about 
labor organizations from Work and Wages, l)y Professor 
Thorold Rogers, of Oxford, not only expresses the view of 
many scholars and business men, but illustrates a common 
change of attitude on the part of many fair-minded persons 
who have seen previous ))rejudiccs against labor organizations 
displaced by a careful examination of their claims: "These 
institutions were repressed with passionate violence and 
malignant watchfulness so long as it was possible to do so. 
When it was necessary to relax the severities of the older 
laws, they were still persecuted by legal chicanery whenever 
oppression could on any pretext be justified. As they were 
slowly emancipated, they have constantly been the object of 
alarmist calumnies and sinister predictions. I do not s])eak 
of the language of newspapers and reviewers, which simply 
re-echoed the passions of the hour ; far graver were the alle- 
gations of Senior and Thornton. . . . I confess to at one time 
having viewed them suspiciously; but a long study of the 
history of labor has convinced me that they are not only the 
b est friends of the workman but the best agency for the em- 
ployer and the public; and that to the extension of these 
associations political econiMuists and statesmen must look for 
the solutipn of some among the most pressing and difficult 
problems of our times." 

It may be proper to state that while the author does not 
hope for so much as Professor Rogers seems to from labor 



i 



232 AN INTRODUCTION TO FOLITIGAL ECONOMY. 

organizations alone his experience has in the main been the 
same. 

Space is too limited to permit an explanation of the im- 
measurable misapprehensions of the general public in regard 
to labor organizations. One of them is that innocent and 
peace-loving working-men, perfectly contented, are misled 
by agit;itors who have been placed at the head of labor or- 
ganizations. Careful observation will show that the influ- 
ence of labor leaders is conservative on the whole, and that 
strikes originate among the masses and are generally resisted 
by the leaders so long as it is possible. It will also show 
that leaders are readier than a large proportion of the " rank 
and tile " in the ofganizations to terminate strikes. 

Success and Failure of Strikes. — Strikes produce 
harm, and every effort should be made to avoid them. 
They are, however, successful in more cases than is ordinarily 
supposed, and when occasionally a decided victory is scored 
the gain is immense. An agitation of a few weeks and a 
strike of a few days, together with an act of legislature, es- 
tablished a reduction of the hours of labor from seventeen 
to twelve for the hundreds of street-car employes in Balti- 
more. This is probably an advantage permanently secured. 
Other illustrations might be given, and nothing is gained 
by shutting our eyes to such facts. 

Violence is disastrous, and the welfare of the masses can 
only be secured by peaceful measures. While condemning 
in deserved terms violence, which too often accompanies 
strikes and which reacts against working-men, it is only fair 
to recognize the fact that this violence is largely due to 
criminal classes in cities which improve such opportunities 
for disturbance, and not wholly to the working-men. It is 
manifest, however, that, even so, it is only another argument 
against strikes wherever they can be avoided, and Cor the set- 
tlement of differences between labor and capital by j)eacef ul 
arbitration. 

Temperance. — Nearly all labor organizations are temper- 
ance societies, and many of their officers are total abstainers. 



LAIU) U n U (!AXI/.A Tl O XS. 238 

They have greatly (limiiii.slicd iiileiiipcraiice among tliose 
■who hehjiig to them. 

Educational Value. — Their ediicational vahie is also 
noteworlliy. Tlie (lel)ales and discussions wliich they foster 
Btimidate the intellect and do much to counlcract the deaden- 
ing effects of a widely extended division of laboi'. 

Labor organizations bring men and frecjuently also women 
togetlier and furnish opportunities for social culture. Temp- 
tations to coarse indulgence are thereby lessened, and an im- 
portant side of human nature receives better opportunity for 
develoi)ment. 

It may be hoped that labor or^nizations arc preparing 
the way for a better civilization. Qbrtainly one of the most 
hopeful features of the situation is the willingness of oi-gan- 
i/.ed working-men to listen to strong and manly words from 
those who understand their real purposes, who go among tliem 
and, with sympathy for their just aspirations, endeavor to 
help tliem to distinguish between the foolish and the wise, 
the wrong and the right, to sliow them how to pursue the 
good, and to inspire them with faith in that rigliteousnoss 
which alone can exalt the masses in a nation ; that is, the 
nation as a whole. 



Read cliapter viii, on " Wages as Affected by Combina- 
tions," in Clark's Philosophy of Wealth. It is an admirable 
treatment of fundamental principles. Ely's Labor Movement 
in America is the oidy book which attempts to treat scientific- 
ally the subject with which it deals. See especially chapters 
iii-vl. A work edited by George E. INfcXeill, called The 
Labor Movement, the Problem of To-day^ is written mostly 
by those who have actively participated in the work of labor 
organizations, and is the best presentation by working-men 
of their view of labor organizations. The student should 
not fail to study labor organizations at first-hand, as nat- 
uralists study animals, and not be satisfied with garbled 
newspaper accounts for information. The Jour)ial of United 



234 AN INTRODUCTION TO POLITICAL ECONOMY. 

Labor, the organ of the Knights of Labor, and The Carpen- 
ter, the organ of the Brotherhood of Carpenters, both pub- 
lished in Philadelphia, the Labor Leader of Boston, the 
Furniture Worker^s Journal, and tlae Granite Outter^s Jour- 
nal of New York, and any one of many other labor papers 
will be of assistance. 



CHAPTER IV. 

PROFIT SHARING AND CO-OPERATION. 

Profit-Sharing in the United States, — Labor organi- 
zations strive to secure higher wages for working-men than 
they would otherwise obtain, and thus to increase their share 
of the products of industry. P rofit-sharin g goes a step 
further than hibor organizations. Those who advocate 
})rotit-sharing wish hiborers to secure a_j3ortion of profits in 
addition to ordinary wages. It is held ihat this arraiigenicnt 
piToniotes economical use of material and machinery b}' cra- 
ployc s and generally i ncre ases .their zeal and efficiency. 
The resul t is a larger total product and a larger revenue for 
the wage-receivers. Profit-sharing has been extensively tried 
in the United States, and it has Ijcen successfully introduced 
by some of the largest productive establishments in the 
country. Recent testimony of American employers who 
have tried it is almost unanimously in its favor, although 
one prominent manufacturer abandoned it, and one or two 
have not found that it quite realized their expectations. 
Some influential employers appear to be enthusiastic in their 
praise of its practical working, and a member of a firm which 
has distributed over one hundred thousand dollars of profits 
to its employes writes to the author that he and his part- 
ners consider it the best investment that they ever made. He 
thinks that they have the most loyal set of working-men in 
the world. Instances recorded in three months showed that 
at least ten thousand working-men had in that period been 
admitted to a share in profits in the United States. 

Profit-sharing may be extended to capital-sharing — partial 
ownei'ship of capital by working-men and participation in 
management. The large manufacturing establishment of 



236 AX INTRODUCTION TO POLITIGAL ECONOMY. 

Godin , in Guise, France, serves as the,. best_ example which 
occurs Jo the author. M. Godin gradually educated a large 
body of working-people to that point where they could take 
a part in the management of his large business, and at 
the same time encouraged them to acquire a part of the 
capital. If recent reports are trustworthy, the workingraen 
have finally acquired and now manage the entire business. 

If we call industry, as ordinarily organized in our great 
mercantile and manufacturing establishments, despotism, we 
may call an establishment where laborers participate in cap- 
ital ownership and management, under the chief control of 
some one who is recognized as an industrial superior, a con- 
stitutional monarchy. These terms, although indicative of 
mere analogies, are, after all, instructive. The despotic prin- 
ciple, the one-man power, both in politics and in industry^ 
is an excellent thing in its own time and place, and in in- 
dustry it has necessarily continued longer than in the po- 
litical sphere. It is a phase of development, but it ought 
not to he regarded as final. A large part of the indus- 
trial troubles of modern society undoubtedly find their 
origin in the fact that development of the economic depart- 
ment of social life has proceeded more slowly than the de- 
velopment of other departments. Elsewhere the despotic 
principle has been softened or displaced, but continuing in 
the economic sphere it is a discoi'dant element; yet it is diffi- 
cult for most of us to see how for a long time to come we 
can wholly dispense with the one-man principle in industry. 
It should, however, be softened as far as practicable, and men 
should be gradually trained to undei-stand industrial republi- 
canism or democracy. M. Godin has set a noble example. 

Industrial democracy means self-rule, self-control, tlie self- 
djj'ection of the masses in their efforts to gain a livelihood. 
Industrial democracy is industrial self-government, and this 
is found in pure co-operation. 

Co^PP-S^tLon is of two kinds : coercive, which means 
governmental action, and voluntary. We have here to do 
with voluntary co-operation, and this is what is usually meant 



PROFIT SIlAlilXd AM) VOOrFAiATlON. 237 

when oi)-()|)or;it ion is spoken of. Wmjun^-rnen combine their 
o\Yi\ e:»j[>it;il, imrcliase tlicLr own XJlant, m anag e their o\vn af- 
fairs in their own way, at their own risk, sharing profit or los!* 
as the c ase jmiy be. This is cal led prudui^tlvc co-ope r uf inn. 
But ^^lc_hav e als o what is called distributive co-ope ration, 
DisUlbi}iiv_c_CQ--043Leratii)ii means co-operation in distribution, 
not in the sense in which the word is used ordinarily in 
political economy, but in the sense in which we might speak 
of a merchant's activity in distribution. H e dis tribu tes 
\vares^ Di stributive co -operation refers to retail and whole- 
sale tradcj and is only an imperfect form of co-operation. 
Purchasers of wares, groceries, dry goods, etc., combine to- 
gether to purchase what they need, and thus save profits. 
They form a stock company, subscribe for shares, employ a 
manager and clerks who often do not even share in profits, 
and start a business. Profits are sometimes divided only on 
shares, but the approved way is to pay a moderate interest 
on capital and to divide profits between stockholders and 
customers in proportion to purchases, the division being 
made at the end of stated intervals. Some establishments 
in Great Britain, and doubtless elsewhere, carry out the full 
programme, and give employes a share of j)rofits. Profits 
a re thus said to be dividedjimong capital, custom, and labor. 
Distributive co-operation has in England and Scotland 
succeeded better than productive co-operation, which has, 
however, met wiih some success. France appears to have 
succeeded better than England in productive co-operation. 
Some instances of succtss in the United States are recorded, 
and many undertakings have been partially successful ; by 
which I mean that they have succeeded as business undertak- 
ings, but have abandoned wholly or in part the co-operative 
principle. This is the case with a large stove foundry started 
as a co-operative foundry, and in which some working-men 
or their heirs still own stock. One of the strikers among the 
working-men in this establishment, in a difficulty which 
arose not long since, owned seven thousand dollars' worth of 
stock. The managers seemed to take it much to heart that 



238 AX miRODUCTION TO POLITICAL ECOl^OMY. 

he should strike, but it is hard not to feel a certain admi- 
ration for him, as he placed the union of his fellow-em- 
ployes above his interests as a capitalist. A good example 
of pure co-operation is afforded by the co-operative coopers 
of Minneapolis, who have nearly absorbed the business of 
making flour barrels in that milling cenier. The superiority 
of co-operation as a business principle has in this case been 
demonstrated. Pure co-operation , when well-established, 
prevents strikes by conr^etely ideutifyiug the interests S)l__ 
labor and cajDital. It stjjrnulates energy and encourages 
thrift. The self-interest which usually animates the em- 
ployer alone animates all co-operators. No slighting of 
work can be tolerated, and, eye-service vanishing, much labor 
of supervision is done away with. On the other hand, di- 
vided councils often render the movements of a business 
clumsy, and action cannot be so quick and decisive as when 
one man acts on his own responsibility. Failures of co- 
operation have generally been due to moral defects on the 
part of working-men. It has been difficult for them to act 
harmoniously together, and prosperity has often produced 
disintegration. Wherever co-operation has succeeded, how- 
ever, it has produced excellent effects on character. It is a 
test, but when the test is stood it reacts benelicially on the 
co-operators. It makes men diligent, frugal, intelligent, 
considerate of the rights of others, as well as their own. 
Co-operation and temperance go hand in hand, as has been 
universally observed by students of co-operation. 

Dr. Albert Shaw, associate editor of the Minneapolis 
Tribune, gives this testimony in regard to the co-operative 
coopers of his city : " The coopers are emphatic in saying 
that the moral effect of their co-operative movement con- 
stitutes its highest success. It has unquestionably wrought 
a transformation in the habits of these craftsmen. They are 
no longer a drunken, disreputable guild, figuring in the 
police courts an 1 deserving the disfavor of the community. 
They have become a responsible and respectable class of 
citizens." 



PROFIT-SIl.\lilX(} A.VD VO-OrJ-JRATKLV. 239 

It was oiK'c thouglit ihaL c'()r|)()r:itions coulil not succeed, 
but the inluTont advantages of corporate industry after a 
long struggle have made theniselvi's manifest, and corpora- 
tions are crushing out the individual. It is believed by some 
that the inherent advantages of co-operation v^^ill sooner or 
later make themselves felt, and that after a period of ad- 
versity, of struggle, and of slowly increasing success co- 
operation will finally gain industrial supremacy; thus uniting 
iiarmoniously labor and capital and ushering in an era of 
industrial democracy. 

On profit-sharing read the work bearing that title by Rev. 
N. P. Gilman. On co-operation read Co-operation in the 
United States, a volume published by the Johns Hopkins 
University. A brief and not so recent account of co-opera- 
tion in the United States will be found in chapter vii of the 
author's Labor Movement in America. Those who read 
German will find most suggestive the argument for the ulti- 
mate triumph of co-operation in Theodor Hertzka's Gesetze 
der Sozialen Entwickelung. 
11 



CHAPTER V. 

SOCIALISM. 

Those who desire industrial democracy — not prematurely 
but in its own time — are many, and they include mt)st of the 
best economists. There are, however, different ways by which 
it is proposed to attain the desired goal. One of these ways 
is voluntary co-operation for all competitive pursuits, and gov- 
ernmental activity for monopolistic undertakings. Another 
one of these ways is^called_socialism. Socialism, means coer- 
cive co-operation not merely for undertakings of a monopo- 
listic nature, but for all productive enterprises, SocialLsts seek 
the establishment of industrial democracy through the insti'u- 
mentality of the State, which they hold to be the only way 
whereby it can be attained. Socialism contemplates an ex- 
pansion of the business functions of government until all 
business is absorbed. All business is then to be regulated 
by the people in. their organic capacity, each man and each 
woman having the same rights which any other man or any 
other woman has. Our political organization is to become 
an economic industrial organization, controlled by universal 
suffrage. Socialism will make civil service employes of all 
citizens, and will remunerate them in such manner as shall 
in view of all the circumstances nppear to the public author- 
ities to be just. Private property in profit-producing capital 
and rent-producing land is to be abolished, and private prop- 
erty in income is to be retained, but with this restriction : 
that it shall not be employed in productive enterprises. 
What is desired, then, is not, as is su23posed by the unin- 
formed, a division of property, but a concentration of prop- 
erty. The socialists do not compl ain because productive 
property^ is too much concentrated, but because it is not 



SOCIALISM. 241 

6uni<.'i<.'iilly coiiceutnitocl. Socialists consequently rejoice in 
the formation of trusts and conibinations, holding that they 
aj]e a development in the right direction. 

There are four jLjlenjieiits in socialism; namely, first, the 
common ownership of the means of production ; secoiul, the 
c()m^inoii management of these means of produ(;tion ; third, 
th e di>t iil)uti()M of annual products of industry by common 
authority ; fourth, juivate property in income. Socialists 
make no war on capital, strictly speaking. No one but a 
fool could do such a thing. What socialists object to is not 
capital but the private capitalist. They desire to nationalize 
ca|jital and to abolish capitalists as a distinct class by making 
eveiy body, as a member of the community, a capitalist; 
that is, a partial owner of all the capital in the country. 

Socialists say that labor creates all wealth. No rational 
socialist means thereby to deny that land and capital are 
factors of production, but as they are passive factors they 
hold that their owners ought not to receive a share of the 
product unless they personally are useful members of the 
community. Labor is the active factor, and all production 
is carried on for the sake of man. Land and labor are sim- 
ply the tools of man. Socialists admit that the owners of 
these tools must receive a return for them when industry is 
organized as it is now ; hence they desire that these tools 
should become common property. They wish to make of 
universal application the command of the apostle Paul: "If 
a man will not work, neither let him eat." 

Distributive Justice. — The central aim of socialism, the 
pivotal point, is distributive justice. It proposes to dis- 
tribute products justly. The ideas of socialists are, how- 
ever, not harmonious as to what constitutes justice. Some 
say equality is justice ; others, distribution in proportion 
to real needs, so that each may have the economic means for 
liis completest development. Still others say justice means 
distribution in proportion to merit or service rendered — but 
the service of the individual, not of his ancestors. Bequest 
and inheritance, except of articles of enjoyment, like pict- 



242 AN INTRODUCTION TO POLITICAL ECONOMY. 

ures, old family plate, books, household furniture, possibly 
also the use of a house as a home, must be abolished. So- 
cialism allows no inheritance which renders labor needless. 

It ought not to be hard to j)icture socialism to one's self. 
Government owns the post-office ; most governments own the 
telegraph. Nearly all own the wagon roads. Some own the 
canals and railways. Many governments own factories. 
Probably every national government does at least a little 
manufacturing. Most governments cultivate forests, and 
some cultivate more or less land. We have only to imagine 
an extension of what already exists until government culti- 
vates all land, manufactures all goods, conducts all exchanges, 
and carries on, in short, every productive enterprise, and we 
have socialism pure and simple. It may be conceived as 
compatible with constitutional monarchy or with republican- 
ism. Socialism is compatible with a centralized government, 
but „also and more naturally with a decentralized govern- 
ra£n.t. Some functions would fall to the minor civil divis- 
ions, others to States, others to federations of States — even to 
international federations. 

What is Socialistic ? — Surely not every public activity. 
Properly speaking, that only can be considered socialistic 
which tends to an absorption of all production by the govern- 
ment. Does a measure tend to the suppression of individual 
production and production by voluntary associations of indi- 
viduals and to the absorption of production by government ? 
Then it is socialistic ; otherwise not. This is the only way 
to distinguish between socialistic and non-socialistic, or even 
anti-socialistic, measui-es. This fui-nishes us with a rational 
basis for judgment. If we are socialistic we will favor social- 
istic measures, but if we are opposed to socialism w^e wall at 
least be inclined to reject socialistic measures. Are compul- 
sory education and free schools socialistic ? No ; they are 
decidedly anti-socialistic. They develop capacity for self- 
help, and enable those who grow up under their influence to 
make the best of existing institutions. They are a conserv- 
ative force. Are gas-works, electric lighting works, water- 



SOCIALISM. 243 

works, and tlio like, owned and opciafod by niiini -iiialilics 
socialistic":' No; lor tlu'y arc in line with a modern tend- 
ency to sei>aratc sharply between tlie indnstiial functions 
(tf private persons and the industrial functions of the i»olit- 
ically organized conununity. There is a sound princi|)le at 
the foundation of this tendency. The conviction is gradually 
^'iiVaL *oi'*^'<-'^l u]»on us by science and actual experience that 
luitunvl inonopolies arc best owned and operated by govern- 
njentj while competitive businesses ttourisli only in the atmos- 
phere of private enterprise and free competition. If we 
8ej)arate thus on rational principles the private from the pub- 
lic industrial sphere, instead of letting things drift in hap- 
hazard fashion into chaos we lay the strongest possible 
foundations for the existing oi-der. 

The Strength of Socialism. — Socialism makes per- 
haps its strongest claims in its plea, first, for a scientific organ- 
ization of the productive forces of society, and second, for a 
just distribution of aimual social income. It is said that the 
present production of economic goods is small in proportion 
to population, but socialism replies : " Naturally enough. 
Competition is wasteful. Twj) railways are built when one 
wouUI suttice. Two trains run parallel between two cities 
where one would serve the public equally well. Three times 
as many milk-wagons, horses, and drivers arc required to 
serve the people Avith milk as would suffice if the milk busi- 
ness were organized like the mail distribution business in 
cities. Look at the stores, wholesale and retail, and see 
the waste of human force. Without competition the whole 
dry goods and grocery business could be carried on with a 
third of the present economic expenditure of force. Reflect 
on all the idle classes in modern society. Socialism would 
set every body to work, and, making each one dependent on 
his own exertions for success, would stimulate all energies." 
The argument is continued after that fashion, and it is tell- 
ing. It does not prove the point unless we grant two things : 
first, that the present waste and idleness cannot be suppressed 
or greatly diminished without a departure from the funda- 



244 AN INTRODUCTION TO POLITICAL ECONOMY. 

mental principles of our present industrial order ; second, 
that socialism is practicable. Justice is a strong plea in the 
programme of socialism, and it cannot be for one moment 
claimed that each one's income is at present in proportion to 
his services to humanity. Income in proportion to industrial 
merit is attractive to an ethical sentiment. But cannot we 
approximate more nearly to that than at present by social 
reform ? And by social reform is meant the improvement 
of existing institutions, but not their abandonment. No 
doubt the idle man is morally a thief. He receives, but 
gives nothing in return. Any man who by past services of 
his own has not earned the right of repose is a shameless 
cumberer of the earth, unless, indeed, he is physically or men- 
tally incapacitated for useful employment. Would the 
world suffer if you should die? That is the test. If you 
merely clip coupons, then no one would miss you. Others 
would willingly relieve you. But your service need not be 
manual toil. 

Dr. James Fraser, the late Bishop of Manchester, England, 
recognized the obligations of personal service, but he did 
not in consequence favor socialism. He argued in this 
wise : "Most of us are by our necessities obliged to render 
services to our fellows. Some of us, however, have inher- 
ited or received money in some way without a return on 
our part. We are placed by God on our honor. It is now 
a matter not of physical compulsion but of honor with ns to 
serve our fellows." * What is here said would apply of 
course not merely to those who receive wealth by inherit- 
ance, but to those who become wealthy by the discovery of 
valuable treasures, like oil, natural gas, gold, minerals, etc., 
on or under soil which they own, or by the mere growth 
of cities, which adds immensely to the value of land. Legally 
the wealth is mine, but morally it is simply a new opportu- 
nity for me to help forward the progress of humanity; for 
ethically I myself am not my own. 

* These are not the bishop's exact words. It has been many years since 
I have read them, but I have reproduced the idea. 



SOC/AJ./SM. 245 

Social Reform. — We lu.iy liki-u isc iiuiiiiic whether wilh- 
out a departure from tlie institution of private j)roperty, the 
laws of becpiest and inheritance may not be so changed as to 
bring about a fairer distribution of products ; whether, 
also, by public ownership and niaiiagcnuMit of natural mon- 
opolies much of the waste of present private competition may 
not be avoided. These and a multitude of other questions 
suggest themselves. The author holds that social reform is 
likely to accomplish moi'e valuable results than socialism. 
What is, in liis opinion, needed is a free and peaceful evolu- 
tion of industrial institutions, but not a radical departure from 
fundamental institutions. 

The Weakness of Socialism. — It does not appear clear 
to the author how socialism could be made to work in actual 
life. The danger to freedom seems a very real one. It is 
frankly admitted that up to a certain point there is a tend- 
ency on the part of government to improve as its functions 
increase. But would this hold with the indefinite extension 
of the sphere of government ? Let us admit that as our 
livelihood would depend on the efficiency of government all 
the force and energy Avhich now go into private service 
would be turned into public channels. But what would hap- 
pen if, in spite of all precautions, some unscrupulous combina- 
tion should secure the conti'ol of government ? There would 
be no standing-ground lor effective opposition outside of gov- 
ernment, for dismissal from the service of government would 
mean a cessation of opportunity to gain a livelihood. If all 
])roduction is to be carried on by public authority there could 
be no private press for criticism; and it is to be feared that 
unwelcome views, which after all may be the true ones, would 
fare much worse than at present. 

The domination of a single industrial principle is also dan- 
gerous to civilization. It has been held that the domination 
of a single social principle has led to the downfall of older 
civilizations, and a distinguished American * has expressed the 

* Hon. A. D. White, ox-presidont of Cornell University, in liis excellent 
address eiiLilled Tlie Message of the Nineteenth Century to the Tioentklh. 



246 AN INTROD UCTION TO POLITICAL ECONOMY. 

fear that the private business principle, with what naturally 
goes with it, called by this scholar " mercantilism," threatens 
American civilization. Now what is wanted is a co-ordina- 
tion of the two principles, the principle of public business and 
that of private business. It is desirable that some should 
serve the public in an official capacity. Some are adapted for 
that. It is desirable that an ample field should be left for 
those who prefer private initiative and activity. It seems to 
the author that thus only will our civilization be rendered 
rich and full. 

Socialists. — Socialism has rendered good service by call- 
ing attention to social problems, by forcing us to reflect on 
the condition of the less fortunate classes, by quickening our 
consciences ; also by helping us to form the habit, acquired 
by few as yet, of looking at all questions from the stand-point 
of the public welfare and not merely of individual gain; 
finally, by calling our attention to the nature of the industrial 
functions of government, and helping us to separate ration- 
ally the private industrial sphere from the public industrial 
sphere. Socialism as a theory of society cannot, of course, be 
regarded as in any sense morally blameworthy. It has been 
advocated by good men and by bad men also. To-day it 
numbers earnest Christians and sincere ministers of the 
Gospel among its adherents. As there are good repub- 
licans and bad republicans, there are good socialists and 
bad socialists. If every time a republican was guilty 
of a criminal act, all the newspapers said, " That is what 
comes of being a republican," we might begin to think all re- 
publicans bad men. It is a mistake to suppose that socialists 
belong to the criminal classes. Those who have worked 
among the criminal classes and carefully studied them will 
tell us that almost no socialists are found among them. At 
the same time it must be said that the socialists have been 
most unfortunate in a large proportion of their public repre- 
sentatives, esj)ecially of their noisiest representatives, who 
have secured the largest amount of attention. Some of 
them have been vicious men, and many of them have been 



SOCIALISM. 247 

bittor :iii<l vindictive. Ncc'dlt-ss luiiiiiosil y li;i.s Ix'cii ;ir(iiis('(l 
aiiil class liati'i'd iioiiiislu'd. 'I'hc cause of proi^icss has tliiis 
l)c'on seriously injured. Furthermore, a number ol" questions 
liaving no eoniu'ction with soidalism have been, even by 
socialists, assot^iated with it. I ntide lity iind frc i^ love m ay 
be mentioned. Of course these haA;e_nothing to do with 
socialism. Socialism has done harm pn account of tlie 
manner in which it lias been too frequently presented, and 
it lias also accomplished good, but the best effects of social- 
ism have been its indirect and not its direct consequences. 

Anarchism. — It remains only to make a few distinctions. 
S ociali sm has been described as industrial democracy estab- 
l ishcd a nd controlled by govciiiiiicnt. . There are, liowever, 
those who hold that if all guveniinent were abolished men 
would freely and spontaneously form co-operative groups 
which, federated, would manage all production. These men 
attack g overnment and deny the moral right of man through 
govem meiil to exercise nutlioril)' over his fellows. These., 
are the anarchists, sometimes called anarchist-socialists. The 
writer frankly confesses his inability even to imagine how 
this kind of socialism could be made to work in actual life. 
Scientific anarchy is something he cannot picture to himself 
as any thing more substantial than a dream. When socialism 
is defined so as to include anarchy, we have two kinds of 
socialism — namely, anarchy and collectivism ; collectivism 
meaning what has been called socialism in this chapter. Col- 
lectivism is often used interchangeably with socialism, par- 
ticularly in France. 

C ommu ni sm is an older term not now often used. It 
has been employed in the past to designate a n extre me kind 
of^socialism. Socialism when it means also equal distribution 
of _ pro d nets has been called by smihc communisin, and the 
production and distril)ution of eionomic goods by the State 
was only then called socialism when unequal distribution of 
products was advocated. Some writers have called violent 
schemes of radical social reform communistic, and reserved 
the term socialistic for the more conservative plans of 
11* 



248 AN INTR OD UCTION TO POLITICAL ECONOMY. 

reconstruction. All the existing communistic societies in the 
United States are, however, composed of peace men, who do 
not believe in war but in non-resistance. It is, perhaps, as 
well to abandon the attempt to make a distinction between 
communism and socialism, and to drop the word communism. 



Kirkup's Inquiry into Socialism gives the best presenta- 
tion of a very conservative kind of socialism. Kirkup, how- 
ever, includes voluntary co-operation under socialism, and 
the socialism which he describes is not, strictly speaking, 
pure socialism. It is the substitution of the co-operative 
for the competitive principle. Other works are mentioned 
in Part VIII. 

On bequest and inheritance read Mill's Political Economy, 
Book II, chapter ii, and Book V, chapter ix. Also the 
author's Taxation in American States and Cities, Part III, 
chapter viii. 



CHAPTER VI. 

MOXOPOLIKS. 

1. Artificial Monopolies. — Only a word can l)e said 
about artificial inonopolits. liiisiiicsses are aititicial mono- 
polies wlien tliey are made monopolies not by their own 
inlierfijit properties but by legislative enactment or bj'^ the 
formation of a close connection with natural monopolies, 
whereby they are made to partake of the qualities of the 
latter. Kings and queens formerly granted exclusive busi- 
ne ss pr ivileges to favored persons, and permitted no one ex- 
cept those named to engage in certain undertakings. These 
early monopolies became so odious that sovereigns were com- 
pelled to abandon their claims of right to grant exclusive 
economic privileges. 

It is held that our American tariff laws create artificial 
monopolies, and, while tlieir influence in this direction is lui 
doubtedly vastly exaggerated, it seems scarcely possible t 
deny that they have assisted the producers of a few articles 
to form domestic combinations for the sup})ression of compe-/ 
tition. The remedy suggests itself. 

Patents. — Government creates exclusive jirivileges by 
copyright and patent laws, but this is done ])rofeg8cdly in 
the interest of the general public and not of any favored 
class. Authors and inventors are granted exclusive rights 
in their productions for a limited period. This monopoly is 
considered a fit reward for valuable public services. Copy- 
rights and patents have been objected to as interferences 
M'ith natural liberty, but they appear to have justified them- 
selves in the stimulus which they have given to authorship 
and invention. It must, however, be remembered that all in- 
tellectual effort is an historical product. The telephone, for 



250 AN INTRODUCTION TO POLITICAL ECONOMY. 

example, did not spring from the mind of one man, as Mi- 
nerva from the head of Jupiter. The telephone was preceded 
by a century of scientific invention and discovery, mfost of it 
poorly enough remunerated. The telegraph was, similarly, 
the result of generations of careful, plodding industry of 
scores of men. Prof essor Henry, of Princeton College, 
whose services in connection with the completion of the tele- 
graph were most distinguished, conscientiously refused to take 
out any patent. It also happens that several persons almost 
simultaneously and independently make the same discoveries 
and inventions. Now if the man who makes the finishing 
touches which lead to utilization of a long line of work alone 
is rewarded, it is like paying only the workmen who put the 
roof on the house. It is not generally understood how sein- 
ous an interference with liberty patents are. A man who 
has a patent is allowed to say to all the rest of the world, 
"Because I have first done such and such things, you must 
not do them," Yet there may be those who about the same 
time, without any knowledge of him, had found out how to do 
them. When a principle existing in nature is allowed to be 
patented, and not merc'ly the application of the principle, the 
interference with liberty becomes still stronger. The ])rac- 
tical conclusion is somewhat like this : Patents, like copy- 
rights, are beneficial. Experience seems to Avarrant this 
assertion. Patents do not, however, rest on so strong a basis 
as copyrights, because no two persons could ever write pre- 
cisely the same book, and the fact that I have written a book 
in no wise keeps you from writing any book you please. 
Patents should not be granted on light and trivial grounds, 
and the period for which they are granted ought to be strictly 
limited, and subterfuges for the evasion of this limitation 
ought not to be suffered to succeed as at present. Moreover, 
owners of patents ought to receive their patents on conditions 
which will compel them to use them or allow them to lapse ; 
perhaps, also, to grant to others the right to use the patent on 
payment of a reasonable royalty. Laws ought also to be 
changed so as to prevent such an abuse of patents as we have 



MONOPOLIES. 251 

fivqiientlv Nvilnrs.r.l ia our rural .lisl rids, wlu-rc fanners 
have been induced to infringe \ki[vu\s unwitlinLrly in ord(-r 
that danWLrcs might be collected from them. The suggestn.n 
of the .'enTleman wlio is Commissioner of Patents at the tune 
tliis is being written, that t_he right of purchase of a patent 
be reser ved by the United States, is to be commended. Our 
p"^u"^at the present time promote monopoly, and in some 
cases interfere senselessly, it is to be feared, with manufact- 
ures. The patent laws require to be simplified and amended 
and their abuses removed. At the same time reward should 
in some way always be provided for those who make valua- 
ble inventions. 

2. Natural^Monopolies.— Natural monopolies have al- 
ready been treated in other ehapters of this book. It now 
remains to sum up and complete what has been said and to 
consider them with particular reference to distribution. 
Natural monopolies are those businesses which become 
monoporus oil arrount of their own inherent properties. 
The principal ones have been enumerated. They are 
wacron-roads and streets, canals, docks, bxfidges and ferries, 
wS^T^^^^ bai:bors, light-houses, railways, telegraphs, tele- 
])lion^the post-office, electric lighting, water-works, gas- 
works, street-cars of all kinds. 

A writer of merit* has given the following characteris- 
tics of natural monopolies \vhich will help the reader to 
understand why they must be monopolies: 

« 1. What thev sn])ply is a necess ary. 

''27 They occupy peculiarly favored, spots or lines of 

land. . 

' " 3^ The article oiiconvenience thex^ivp£ly is^^l^ed at the 
place, where and in connection with the plant or machinery 
by which it is sujiplied. 

" 4^This_article or convenienee can in general be largely, 
if not indefinitely, increased without proportionate increase 
in plant and capital. 

• Mr. Farrer, in lii=? book TJie Slate in its Jiclation to Tnide, in ll.e " En- 
glish Citizen Series." 



253 AN INTRODUCTIOX TO POLITICAL ECOXOMY. 

" 5. Ce rtainty and_liarmonioiis aiTan^ement, which ean_ 
only be maintained by unity, are paramQjmt considera- 
tions." . 

Combination and Competition. — It was long^gojaid by 
a shrewd English engineer that w h ere comb ination is possible 
competition is impossible. Conjjihmdon is always possibleJn 
the case of undertakings which are natural monopolies. It 
is inevitable, for it is not only cheaper to do a given amount 
of business by a monopoly than by two or more concerns, 
but very much cheaper. If two gas companies in a city, 
having each a capital of a million dollars, operating sepa- 
rately are able to make ten per cent, profits, when combined 
they will make much more than ten per cent., jDossibly even 
fifteen or twenty per cent. There is a force continually at 
work drawing them together. It works as constantly if not 
as uniformly as the attraction of gravitation, and in the 
discussion of natural monopolies we can safely predict con- 
solidation. That part of political economy which deals with 
natural monopolies more nearly resembles physics or astron- 
omy than any other part of our science. 

We are not left to general principles. The testimony of 
experience is ample. There is never any real competition in 
the field of natural monopolies. There is war to settle the 
terms of combination, and popular language which uses the 
Avord war, as " gas. war," " rail way w ar," etc., is scientifically 
correct. Co mpe tition is a steady, permanent pressure, while 
war is destructive, and seeks to damage an enemy in order to 
make peace advantageously. ISTo doubt it has been tried 
over a thousand times to compel gas companies in a city to 
compete, but in the world's history it has never succeeded, 
and it never can succeed. The same may be said with ref- 
erence to telegraph companies. We have had, probably, 
over a hundred different companies in the United States. 
England has tried competition over and over again. At 
present real competition in the telegraph business exists in no 
country in the world. It will never exist. Railways have 
in all European countries combined, and the apparent com- 



MO.VOPOIJES. 253 

petition in this country is illusory and temjiorary. Com- 
bination is goini; forward with unprecedented rapidiiy. 

What shall he our ixjjicy ? Mono poly i.s iiievitahle. 1^- 
v ate m onopoly is odious. PuhliiMuonopoly is a blessing, and 
the test of experience approves it. Again and again it has 
been tried with fear and trembling, but the results have in 
the long run been gratifying. Public ownership and ni:ui- 
agement of railways have in Germany succeeded in many 
respects even better than their advocates anticipated, and the 
opinion of experts in Germany favors tliem almost if not 
quite unanimously. The writer happens to know of no ex- 
ception. 

But shall we at once try to substitute public ownership 
and management of natural monopolies for private owner- 
ship and management in the United States ? The private 
interests opposed to this step, the apathy, indifference, and 
prejudice to be overcome, are so tremendous that there is no 
sort of danger of moving too rapidly in this matter. What 
the writer would advocate is li mitation o f charters for natu- 
ral monopolies and an extension of the reserved rights of 
the public in order that such changes as shall finally be de- 
cided to be beneficial may be easily and readily made. The 
right of purchase of a natural monopoly without paying any 
thing for the franchise itself, but only for value of capital 
actually invested, and for its value in its condition at time 
of purchase, ought always to be reserved. Local natural 
niojiopolies ought to pass into the hands of local authorities 
a s soo n as possible, and no_charters ought hejeafter to be 
granted for private gas?, water, or electric lighting works. 
AJway s begin ref oj-m at home. 

The Advantages Claimed. — The advantage s, which 
it is claimed that public ownership and management will 
bring are many, and the principal ones will be briefly enu- 
merated. 

1. Increase of Public Prosperity. — First, a diffusion of 
their income among the community will take place, and 
this will tend to prevent an undue concentr ation o f wealth. 



4 



254 A^ INTRODUGTION TO POLITICAL ECONOMY. 

while it will promote general prosperity, th e ideal of the 
fatliers of the American republic. How profitable n atural 
mwiopolies are may be seen from the fact that they are the 
source of most of the enormous fortunes of our country. 
The income from them may be diffused in two ways : First, 
charges may be placed so low that price will simply cover 
cost. This is the method pursued by our post-office and by 
the English telegraph. Second, a profit may be derived 
from these pursuits, and this used to lower taxes or to do 
things of benefit to the people as a whole, as to improve our 
roads and streets and all our schools, to encourage art and 
literature, and the like. A middle course may be taken. 
Prices may be reduced and a moderate profit used for public 
purposes. 

2. Ecpnomy, — The second great advantage claimed is 
the greater_economy of public ownership and management, 
whereby the products to be distributed will be increased. 
We may thus avoid the larger portion of that waste of 
which socialists complain without abandoning the funda- 
mental principles of the existing order. It is in fact the 
bad management of natural monopolies which has given to 
socialism a considerable part of its strength. 

How enormous the waste of attempted competition and 
war in the field of natural monopolies is may be seen on 
every side. The construction of only two needless parallel 
lines of railway in the United States, the West Shore and 
the Nickel Plate, extending together from New York to 
Chicago, wasted two hundred millions of dollars; a sum 
sufficient to build two hundred thousand homes for a 
million people. Probably the Avaste in railway construc- 
tion and operation in the United States during the past 
fifty years would be amply sufficient to build comfort- 
able homes for every man, woman, and child now in the . - 
country, - / 

Evei-y city shows that attempted competition eats up a 
large part of what might be profit. Gas C9,n well be supplied 
for a profit in great cities, if the busiwjGss is a perfect mo 



MOyOPOLIES. 255 

nopoly, for sovcnty-five cents. English cities supply it lor 
less. The city of Wheeling supplies g.is for ninety cents a 
thousand :inil makes money. The H:vltimore gas company 
charges one dollar twenty-five cents a thousand — the price 
fixed by the Legislature — and ajiparently is not earning a 
great deal of money for the stockholders. What is the 
reason? Simply this: that the present is a combination of 
half a dozen or more companies which have built works, 
dug up the streets, put gas-mains in them, and run pipes 
into the houses and the like. An enormous sum of money, 
millions of dollars, has been wasted, and this waste is repre- 
sented by bonds on which interest must be paid, as well as 
by an enormously inflated capitalization. The capital has 
simply been wasted. No one has received the benefit, but 
the people of Baltimore have sufiercd the loss, inconvenience, 
and damage of uselessly torn up streets. The experience of 
Baltimore is that of nearly all American cities. 

Municipal ownership and management of natural monopo- 
lies is every-where in Europe being substituted for private 
ownership, and there the question may be regarded as prac- 
tically settled by the test of experience. Public opinion in- 
creasingly favors public enterprise in the United Stales, 
and several cities are making moves which will sooner or 
later result in an increased number of municipal undertak- 
ings in our country. 

When services of a monopolistic nature are performed by 
the public, water, gas, and electric lighting services can all 
be combined, and great economies secured. A better man- 
agement is the result. It is only a popular superstition 
that private enterprise is superior to public enterprise. 
Each is superior in its own field. The author has received 
returns from about twenty American cities owning and 
operating electric ligliting plants, and finds that the average 
net_cpst per night is under fourteen cents per light of t wo thou- 
sand candle-powiav while seventy-five private companies in 
different cities examined charge on an average over forty- 
two cents for the same service— or over three times as much. 



S56 AN INTRODUCTION TO POLITICAL ECONOMY. 

This superiority of public enterprise is not exceptional. 
The writer has had for three years some considerable ex- 
perience in the use of post-office and express companies, 
and has yet to find one instance in which when a mail and 
express package were sent at the same time from the same 
place to the same destination the express package reached 
its destination as soon as the mail. Any one may try the 
experiment for himself. He has also found the post office 
incomparably more obliging and desirous of doing all that 
he asked. It seems to make little difference how mail is 
addressed. If any sort of clue is given it reaches its ad- 
dress. American telegraph service is also inferior to foreign, 
and in its efforts to accommodate the ordinary citizen in- 
ferior to our post-office. In other countries telegrams can 
be sent for as low as nine cents for ten words, and in En- 
gland we have one uniform charge of twelve cents for twelve 
words. We must pay as high as one dollar for ten words in 
the United States. Of course, distance is a small matter. 
Nothing is actually carried. The post-office actually carries 
things, and yet, notwithstanding our long distances, no coun- 
trj'^ carries letters for lower charges than the United States. 

Nor is it true that private enterprise takes the initiative 
in improvements. English municipalities have gone ahead 
of private gas-works in improvements. The English tele- 
graph is introducing improvements which our American tele- 
graphs are strenuously resisting. The burial of wires in 
cities is only one of these improvements. The American 
post-office went ahead of American express companies in 
developing the money-order business. A private savings 
bank in Baltimore follows the lead of the English postal 
savings bank in the establishment of branches and the use 
of stamps pasted on cards until a minimum sum for deposit 
is reached. Government has gone ahead of private corpo- 
ration in publicity of financial accounts, and has shown 
many of the pecuniary advantages of publicity. 

3. Purification of Politics. — The third great advan- 
tage of the public principle for natural monopolies is the 



MONOroLIKS. 257 

purification of politics. Private nioiiopolios must be con- 
trolled by public luiilioiit y, ;uiil loiilrol means interference 
with private business, and this begets corruption. Wherever 
electric lighting is supplied by ii private corporation the 
stock is distributed " where it will do tiie most good," among 
influential citizens, newspaper proprietors, and politicians, 
and we have a powerful factor arrayed against good govern- 
ment. This is why American citizens ))ay such large sums 
for the services rendered by corporations, and one reason 
why the government of American cities is so expensive. 
When, however, we have public ownership aiul management 
of natural monopolies public interests and j)rivate interests 
are identified, and the best citizens are on the side of good 
government. Those who take pains can observe evidences 
of this on every hand. Mayors, where electric lighting is 
done by the municipality, will testify to the good political 
effects. "We have here the suggestion of the true way to 
reform our civil service. It is idle to say, " Wait until our 
civil service is better, and then we will introduce the prin- 
ciple of public ownership and management of natural monop- 
olies," The industrial reform must precede, for that 
alone can open the door to thorough-going reform of our 
administration. 

The reforms advocated will give talent a career in the 
service of the State, and private business will absorb only its 
legitimate share of the talent of the country. The danger 
of mercantilism will thus be counteracted. 

4^Will^ Overthrow Artificial Monopolies. — The 
fourth advantage claimed is that the discrimination between 
]>ublic and private business here advocated will prevent the 
existence of many artificial monopolies which are oppressive. 
Certain business men have been favored by those in control 
of natural monopolies, as, for example, in lower freight rates, 
and have built up artificial monopolies. The just and equal 
treatment of all citizens by all natural monopolies would 
help to give all a fair chance, and would confine the concen- 
tration of business to its legitimate limits. 



258 AN INTR OD UCTION TO POLITICAL ECONOMY. 

The principles underlying natural monopolies deserve to 
be carefully studied, and it is suggested that they afford 
good opportunity for the exercise of whatever faculty one 
may possess or may acquire for the observation of industrial 
phenomena. 



See Ely's ProUems of To-day, chapters xvii-xxxi. 



CHAPTER VII. 

A FEW ADDITIOXAL RKMARKS ON SOCIAL PROBLEMS AXU 
REMEDIES FOR SOCIAL EVILS. 

TiiKKK are many social pioMcras, and they arc by no 
moans entirely economic in their nature. They all, liowever, 
have their economic side, and the province of the economist 
is to look at them from the economic stand-point. When 
we discuss distribution we treat social problems not merely 
from tlie economic stand-point, but from the point of view of 
distribution, recognizing, however, that they pertain as well 
to production. 

The most prominent of the present social problems which 
are chiefly economic have already been mentioned and dis- 
cussed with more or less fullness. It now only remains to 
say a few additional words about these and to call attention 
to one or two other social problems not yet mentioned di- 
rectly; also to make some remarks on remedies for social 
troubles. 

Child Labor is one of the most serious evils of our day, and 
it is increasing with alarming rapidity in the United States, 
growing" far more rapidly than population. It is one of those 
things which never regulate themselves, but which, unregu- 
lated, as all experience shows, go from bad to worse. Only 
laws with severe penalties for disobedience and special fac- 
tory inspectors for their enforcement can lessen this evil. 
With these laws must be coupled compulsory education, with 
aderpiate provision for its enforcement by means of truant 
officers and the provision of truant schools. It is thus that 
Massachusetts, the banner State of tlie Union in this as in all 
legislation touching the laboring classes, has greatly lessened 
the evil of child labor. No one under fourteen should l)e al- 



260 AN INTRODUCTION TO POLITICAL ECONOMY. 

lowed to work in factories ; from fourteen to seventeen, after- 
noon and evening continuation-schools should be furnished 
with compulsory attendance for a minimum number of hours; 
and from fourteen to eighteen, for moral and physiological 
reasons, the hours of labor should be limited to a maximum 
of ten on every day except Saturday, when young persons 
should not be allowed to work after one o'clock in the after- 
noon. This regulation ought likewise to apply to married 
women in order to guard the interests of the home. The 
labor of women is increasing frightfully in factories, far more 
rapidly than the growth of population or the labor of men. 
Women ought to be surrounded with every safeguard for 
health, every provision for decency and comfort ought to be 
provided, machinery should be fenced in, employers rendered 
liable for accident, hours of labor ought to be strictly limited 
on physiological principles, especially until maturity ; work 
for a period prescribed by physiology and hygiene, in the in- 
terests not merely of mothers but of the rising generation, 
ought to be entirely prohibited before and after confinement; 
finally, work under ground, and other places dangerous to 
morality ought to be abolished. We Americans have lagged 
far behind Europeans in all these matters. 

Inv olun tary Idleness is a serious social trouble. It ap- 
pears th;it wage-earners are idle about a tenth of the working- 
days in the year on an average, and some of them for several 
months each year. Only a small part of this idleness i s due 
to strikes and lockouts, only about one per cent, in Massachu- 
setts. Leisure forced upon one does only harm. It leads to 
the formation of vicious habits, including drunkenness and 
vagabondage. As much work would be accomplished if 
wage-earners labored nine hours a day regularly, even if no 
increased eificiency were the result, and as increased efficiency 
is the result of shorter hours it is altogether probable that 
eight hours a day of regular work would produce as much 
as ten or eleven hours now with our periods of idleness. It 
may be a difficult problem to know how to effect the desired 
end, but certainly it would be a blessing to our entire social 



SOCIAL /'/i'on/.hWfS A.V/) SOClAf, h'VILSi. 261 

life if work could he distriUiitt'd rci^iilaily tliioui^liout tlio 
divys of the year, with ;i frw Iioliihiys, uiul a tsliort vucatiun, 
but no itlK'iu'ss. 

Intemperance has ali-eady been discussed. It is cause 
and eirecl of imlustrial conditions, but not merely of indus- 
trial conditions, nor even of social conditions. It is undoubt- 
edly an individual matter, and appeals to individuals are in 
place ; but the intliience of social conditions cannot safely 
be left out of considor.ition. 

Pauperism sp rings from soc ial causes already mentioned 
as well as from individual causes, and the remetly must come 
bcUh through improved industrial and social relations and 
ind ividual reformation. We are beginning to hear of a sci- 
ence of charity; and it is sorely needed, for old-fashioned 
alms-giving is a curse. 

The Family is to be kept in view as the true social unit 
in all economic discussions, and divorce is one of the most 
serious evils connected with the family institution. The 
causes for divorces have been shown by the National De- 
partment of Labor at Washington to be largely economic. 
It is the pressure of economic wants in the lower middle 
class which is most fruitful of divorce. 

Corporations have been already treated, and trusts have 
been alluded to. In general the writer opi)Oses interference 
with combinations of labor and of capital. It has been 
productive of harm in the past. Whenever any pursuit is 
such that in that business combinations of labor and capital 
are dangerous, the legitimate conclusion is that it is not fit for 
private enterprise at all, but is suitable only for public mau- 
agoment. 

Ren igdie s in General. — The most general remark in re- 
gard to remedies for social troubles is that there should be 
n o needl ess interference of public authority with private 
business. This is the true source of corruption. I f exten - 
siye interference is an inevitable part of any private busi- 
ness it is a sure sign that it .should be made a public business. 

Interference in behalf of labor is inevitable, but it should 



262 AN INTRODUCTION TO POLITICAL ECONOilT. 

be chiefly confined to tlie protection of women and children 
and to those who are naturally unable to help themselves. 
The general aim should be to educate both the bodies and 
the minds of the rising generation so thoroughly as to re- 
duce the need of interference to a minimum. 

Prevention is always better than cure. The constant aim 
of public authority and private effort should be to anticipate 
troubles and prevent their existence. It is a monstrous doc- 
trine that the State can employ its functions and use public 
money freely to repi'ess crimes, but may not spend a cent to 
prevent their existence. Some would have us think that the 
city of Chicago, for example, is warranted in spending hun- 
dreds of thousands of dollars, or even millions if necessary, 
to hunt down and hang anarchists, but not any money at all 
to provide play-giounds for children, breathing-places for 
adults, to improve the sanitary arrangements of the city, to 
provide wholesome recreation, and in general to remove, as 
far as in its power, all legitimate causes for discontent. It is 
not necessary to show the fallacy of this. Laws_jiiigliLjiot 
to be merely mandatory and repressive. Legislation should 
hold out, so far as practicable, inducements for right conduct. 
It ought to strive, to an ever-increasing extent, to " attract " to 
right action, or to become, as it is technically called, attract- 
ive and positive. 

Popular Suffrage. — Preparation for duties and privi- 
leges of life is a public and a private function, but the 
abolition of duties and privileges is exactly the wrong 
thing. Those who look at social problems from the stand- 
point of the few will desire among us, for example, to abol- 
ish universal suffrage and to restrict suffrage, Avhile those 
who have at heart the welfare of the masses will be more 
inclined to say: " Rather prepare every person in America 
for the duties of citizenship. See to it that every American 
child is compelled to attend school at least six full years, 
and is taught some useful occupation. Diffuse in every way 
a knowledge of the duties and privileges of an American 
citizen, and not until that has been faithfully tried let us 



SOCIAL rnoBLEMS AMI SOCIAL KVILS. 263 

think of a restricted sulTnigo. l)o_not take tlie suH'nige 
Iroiii illiterates, but abolisii illiteracy; and experience has 
shown that this is feasible." 

It is seen that there is no one remccly fur social evils. A 
multitude of agencies for good must work together. Private 
individuals and private associations of individuals must 
su})ply a multitude of these. Religion must furnish men 
with a motive power impelling them to see and do the 
rit'ht. Public authority must likewise do what it can lor 
humanity. ]Men come forward from time to time with some 
one remedy, a panacea for all social evils, but they are dis- 
trusted, and the author thinks justly so. These reformers 
with one idea often have valuable contributions to our 
knowledge to offer but they exaggerate the importance of 
their one idea. 

This part of our treatise cannot be better closed than by 
the following suggestive Avords from the last cliapter of 
Professor de Layoleya's J^-imitlve Jh'operty : "There must 
be for human affairs an order which is the best. That order 
is by no means always the existing one, else why should we 
all desire change in the latter ? But it is the order which 
ought to exist for tlie greatest hapinness of the human race. 
God knows it and desires its adoption. It is for mau to dis- 
cover and establish it." 
12 



PART V. 

CONSUMPTION 



CONSUMPTION. 

"W'uKN the economist comes to treat of consumplion he does 
not approach an entirely new set of economic phenomena, 
but he rather changes his stand-point. The same familiar 
topics occur under consumption which have already met us, 
but the point of view is a different one. Consumption and 
production are correlates. Cons umption is the en d o f £ro- 
duction, and production cannot exceeiLji-Onsuniption. Pro- 
duction can merely_anttcipate consumption. Consumption 
is_jyie_jnotiv:fi_p.OAvex:^i_.pi:Qilllcti^i, and production__g.Qes 
f orwa rd satisfactorily only when there is a reasonable pros- 
pect (>r (■i)nsun\ption for the producer. The toiler must see 
before him as a goal the consumption or the control of the 
consumption of at least a considerable portion of the fruits 
of his exertions. Arthur Young, as often quoted, said: 
" The magic of property turns sand into gold." The dis- 
tinguished traveler had in mind peasant proprietorship, and 
consumption undoubtedly throws light on the nature and 
utility of private property. It is not, however, necessary 
that the cultivator or improver either of rural or urban land 
should enjoy the right of property in it to induce him to 
exert himself. English tenant farmers are among the best 
in the world, and men diligenlly improve real estate in 
American cities which they do not own. It is a prerequisite 
of a wide diffusion of economic energy that the fruits of 
the toil of one who conducts an enterprise should accrue to 
him, and that these fruits should increase in some kind of 
proportion to augmented diligence and efficiency, Rack - 
rentSj which take all save enough to sustain life from eith^* 
the rural or the urban tenant, oppression of government^ 



268 AN INTRODUCTION' TO POLITICAL ECONOMY. 

like the Turkish, which systematically rohs the producers, 
and exactlc)ns_of^ those railway and other corporations which 
are at t£e same time powerful and unscrupulous — all these 
and other similar agencies which discourage the producers 
are destructive. They take away from men the goal of 
consumption, which spurs them on. 

Difficulties in Treating Conaamption. — Consumption 
must be treated very briefly. Only a few main points can 
be touched upon. This part of political economy has not 
yet been sufficiently worked out for satisfactory treatment 
at length in an elementary work like the present. There are 
several reasons why this part of political economy is in a 
particularly backward condition. Firstj one joay connect it 
with a general tendency to forget the end^ of life in our zeal 
to discover the means of it. Many a writer discourses about 
production as if it were in itself the end, and as if consump- 
tion were a misfortune to be reduced to its lowest terms. 
Second, consumption is in many respects more difficult to 
treat. Its laws are le_ss readily discoverable. P roduc tion 
takes place often in the light of day. It is frequently con- 
centrated in large establishments visible to all, and this is 
the case to an ever-increasing extent. A considerable pro- 
portion of consumption, on the other hand, is as widely 
diffused as the homes and dwellings of individuals and 
families. It is more or less covered up; in some cases even 
secret. Consumption now resembles in many of its as- 
pects the old household production of economic goods 
in the days which preceded the science of political economy. 
Thii'd, political economy deals with social relations, and it 
must be confessed that the social element is more universally 
prominent in the pi'oduction of goods than in their con- 
sumption. 

Consumption Defined. — As man crea tes _no new naat- 
ter, but only utilities, so he destroys no matter, but .onlj 
utilities. ^Consumption means the destruction of a utility^Vi 
Now, destruction of a utility is of two kinds; it may be sim- 
ply the destruction of a co ncrete utility , or, more accurately, 



CONSUMPTION. 269 

tho utility of a single_concr£tc (jconomic ;^oo(l, l)ut a destriK;- 
tion witlioiit loss. The utility may pasa over into some pet- 
son or tUiug. Wo may also witness the destruction not 
merely of the utility of a particular tiling but of the utility 
itself. This is the case when nothing is loft to take the place 
of the utility destroyed. If we speak of the first kind of 
consumption a ^ th e destruction of mere concrete lUility^ v,^q 
may call this second kind of consumption the destruction of 
pjire abstra ct ii t illty . 

Consumption is one part of the productive processes. 
Commodities are destroyed. Their utility is destroyed, and 
they are no longer economic goods. Coal and lumber serve 
as illustrations. The utility of the coal and the lumber in 
their original form departs. A ton of coal is burned up and 
a log of wood is used up. The coal is gone and the log no 
longer remains; but all the utility in them has passed over 
into something else, and that with an increase of utility if 
the production in which the coal and the log of wood were 
employed has been successful. Things change their form in 
consumption as in production, but utilities may remain and 
grow. The utHity does not necessarily pass over into a ma- 
terial thing. It may pass over into a person; and this is the 
kind of consumption which in general yields largest i-esults. 
WlienjiQusumption is attended with increase of utility we 
ca ll it productive consumption. When we speak of the con- 
sumption of economic goods by persons we call every useliil 
consumption of a useful member of society productive, and 
every useless consumption of economic goods, as the use of 
mere luxuries even by a useful member of society, as unpro- 
ductive, and every consumption of whatever sort by a use- 
less member of society is unproductive. Such a person is a 
mere curaberer of the ground. His consumption is mere 
waste, and he does not deserve to live. 
, Consumption and Capital-Formation. — Wh_en__cmi- 
suniption leaves, permanent results it is saving. Saving is 
but one form of consumption. Let us say a farmer raises 
one hundred bushels of potatoes, and with his family eats 



270 AN INTRODUCTION TO POLITICAL ECONOMY. 

fifty, while he -exchanges the other fifty for the services of 
persons who produce luxuries for his table, at once also eaten. 
When the fifty bushels are eaten by the family and the other 
fifty bushels by persons who produce luxuries for the family, 
no permanent result is left. Now let us suppose that instead 
of using the fifty bushels to feed laborers who are growing 
luxuries for him, he uses the fifty bushels to construct a 
needed fence on the farm. The potatoes have all been 
equally consumed in both cases, but in the latter case we say 
the farmer has saved fifty bushels of potatoes; by which we 
mean that he has employed them so that a relatively perma- 
nent result of their consumption remains. The fifty bushels 
of potatoes have been eaten, but, as the farmer says, he "has 
something to show" for the consumption. Let us take 
another illustration. A, and B. have each an income in one 
year of one hundred thousand dollars beyond what they need 
to support themselves, A. spends his hundred thousand dol- 
lars in giving a series of magnificent entertainments, and 
thoughtless people say he is a man to be praised because he 
gives employnient to labor. B. spends his hundred thousand 
dollars in constructing a factory. His acquaintances may not 
know what he is doing with his income, and call him a bad 
citizen, who gives no employment but " locks up his money," 
by which seems to be meant one who keeps from consump- 
tion commodities over which he has control. B. has, how- 
ever, consumed or directed the consumption of as large a 
quantity of economic goods as A., and has something left to 
'show for it. (AitQY he has given employment during the 
year to the men who have constructed his factory, he con- 
. tinues to give a number of men employment and opportunity 
I for consumption indefinitely, while A.'s consumption has 
j ceased once for all. It may be said that all truly unproduct- 
I ive consumption is immoral. 

It is to be noticed that gove rnments are more or less 
prominent in capital-formation. When our federal govern- 
ment pays off the national debt it forms capital. The means 
to pay the debt are jcoilected in small sums Jromjnillions of_ 



CONSUMPTION. 271 

peonlo who woulJ not have used llieiu for jiuijkjsos of jiro- 
duction, ami tlien tlie aggregate is handed over to the holder 
of~a written obligation, a l)ond, who uses them as capital. 
These means in the pockets of the people were not capital, 
and only a small proportion would have been ttirnccl into c.ip- 
ital. There can be no doubt that debt-payment by the 
United States has increased the actual capital of the coun- 
try. A part of this new capital, it is true, simply restored 
capital that had once existeil and had been sacrificed years 
before. Similarly, when the United States expends its rev- 
enues for post-office and other federal buildings, and for wise 
internal improvements, it increases capital. It is a consump- 
tion which is at the same time a capital-formation. When 
municipalit ies e^tablishgas-^works, electric lighting works, 
a nd pay for them bX-^ ^^A^ 9^' ^7 loans repaid by taxation, 
the_c'apital of tlie country is increased. The people save a 
portion of their income through the agency of government, 
and it is the only way a^large proportion of tlicm can ever 
be made to save any thing. 

AVe liave capital-formation from the consumption of 
economic goods for the production of external material 
things, but we have what we may call personal capital- 
formation from the consumption of things by persons who 
are acquiring economic skill and aptitudes. 

It must not be supposed that all saving is useful. Capital 
formed is frequently employed destructively. This is the 
case with capital which is used to make an attack on existing 
capital. Capital which is saved to build parallel lines of 
railway or rival gas-works like those which have afflicted tlie 
people of Baltimore is destructive. All these economic goods, 
80 far as the general public is concerned, might have been far 
better consumed in pure enjoyment. 

Alleged Present Consumption of Future Products. 
— AVe_o£te n hea r of consumption in advance of production. 
It is said people live on the future. It is frequently argued 
that during our late war we were consuming faster than Ave 
were producing. It is alleged that the federal bonds repre- 
12* 



272 AN INTROD UCTION TO POLITICAL ECONOMY. 

sented the consumption of future earnings. Those who talk 
thus appear to have no clear notions. It is impos sible to 
consume faster tlian we pi'oduce unless we consume pastisay- 
ings. We cannot eat to-day tlie wheat or potatoes of to- 
morrow, nor can we wear coats before they are made. 
What is alleged can only be true in case the capital of the 
country is diminisliing, whereas during our late civil war it 
increased. What really happened was this : We as a nation 
became indebted to some extent to foreigners, and within the 
nation some of us gained while the rest of us were losing. 
Bonds do not represent a present consumption of future 
wealth, but^ a consumption of existing wealth ^foji^wJiich. a 
government agrees to remunerate its owners in the future. If 
war can be carried on with the aid of bonds it c;in — leaving out 
of consideration what foreigners send us — with a sufficiently 
perfect taxing machinery, conceivably always and praciically 
sometimes, be carried on without bonds. It is only a question 
of how to get hold of existing wealth. War was formerly 
carried on without bonds, because they are a comparatively 
recent contrivance. 

Prodigality and Avarice. — Luxury^vhich falls under 
the head of prodigality, has already been cla^gjed jjnder jno- 
tives of economic activity. It is now necessary to add a few 
further remarks to what has already been written in order 
to look at the subject from our new stand-point. 

'•' When a king makes great outlays he gives alms," was 
the moral justification which Louis XIV. of France offered 
for royal extravagance, and even so really great a writer as 
Montesquieu said, " When the rich diminish their expendi- 
tures the poor die of hunger." It is to be hoped that the 
fallacy_of these utterances is readily aj^parent to all who have 
carefully read what precedes. First, when we save we also 
consume and we give employment, a nd we give more J3rn- 
j^loyment when we make wise investments in productiye 
enterprises, sometimes even a hundred times as much. Second, 
the possession of resources simply means control over labor 
and capital. We can direct them whither we will. We may 



coysuMPT/oy. 273 

guotlu'in such direction that wo ourselves will enjoy their 
products or that others will receive this enjoyment, as when 
we spend it for the benefit of humanity. 

It is said that j)rodigality does no harm if money is spent! 
at homo. Those who talk this way have not graspod the A,; 
B, C of political economy. It is n ot the mo neyjwith which' 
we jre concerned. Monex.is qn]y^ a small part of our wealth. 
It is merely " small change " in great industrial centers, and 
it is conceivable that circumstances may exist under which 
it would be the best thing for us to have money leave the 
country. If prices with us are abnormally high, foreigners) 
cannot purchase our commodities, and our export trade will ' 
decline. What we have to consider in the case of prodigality 
is the destruction of materials and the labor which has been 
used up once for all, wjiereas both materials and labor ought 
tq_have been wisely employed. The one who has control 
over them is guilty of wasted opportunity. 

Ifjuxury is a good thing for the people, how does it hap- 
])en that the masses in Oriental countries are so deplorably 
poor, whereas the few indulge in the most wanton luxury? 
Or how explain the growing poverty of Rome under the em- 
perors while luxury was continually increasing until it became 
the most outrageous in history? Pearls were dissolved in 
■\\Mne to make it expensive, and tongues of birds which had 
been taught to talk were served at dinner because they were 
cost ly. ^Vaste_ isjvast_e,_and no sophistry can make it any 
thing else. If a large proportion of labor and capital are 
employed in the production of luxuries, precisely so much 
less is left for the production of the necessities, comforts, 
and conveniences of life. 

We must in the discussion of luxury as elsewhere distin- 
guish between " the seen and the unseen," the unseen mean- 
ing simply what is not readily seen. The writer is acquainted 
with a university town where the "scale of living," as it is 
called, the general style of life, is set by university professors 
who are rich, and to whom their salaries are only one source 
among others of income. Doubtless tradesmen and thouf;lit- 



274 AN INTRODUCTION TO POLITICAL ECONOMY. 

less spectators praise the expensiveness of living, and say, 
" It makes trade good." That is " the seen." The " unseen " 
is the pain which it causes to other professors and instructors 
who must live only on their salaries; especially the pain to 
their wives. For them it is a continual harassing struggle 
which detracts from their usefulness and dignity. As for the 
rich professors, it is quite possible for them to live plainly, 
for them to set an example of " plain living and high think- 
ing," and still spend all their incomes. Certainly no one is 
fit to hold a college professorship who does not see many 
ways in which all his own resources, however large, could be 
advantageously expended in advancing the interests of hu- 
manity in connection with the work of his own institution. 

It has been said that luxury is a reserve fund ; that in 
times of general distress we have something with which to 
dispense. There is some truth in this, but it is quite clear 
that widely diffused comfort, with a plentiful supply of sav- 
ing institutions well patronized, is a better reserve fund. 
\After the late Franco-German war it was the frugal,. thrifty 
iclasses who lived simply that astonished the world with 
jtheir reserve fund. When France called for billions of 
ifrancs, peasants, artisans, mechanics, and careful fathers of 
families came forward with their hard-earned savings and 
subscribed for more bonds than were offered. 

At the same time it is true that if all should restrict them- 
selves to the bare necessities of life a great portion of exist- 
ing capital and labor would be unemploj^ed. It is possible 
in every civilized land to produce more than the bare neces- 
sities for all. It has only been said that luxuries are not nec- 
essary to give employment. Many costly things are desir- 
able. Magnificent art galleries, grand universities, splendid 
public schools of every grade, fine architecture, especially in 
public buildings and churches, extensive i^leasure-grounds 
and play-grounds for the peoj)le in every city, and even in 
every town and village, all these are among those things on 
Avhich unlimited capital and labor can be expended. These 
things, involving large outlays, ought to be public institu- 



n 



COXSU}fPTI(>y. 275 

lions. It is tlio cxti'iisivo use whicli justides tlie great cx- 
]H'ntliturcs. It has been ch aracteris tic of periods of national 
(loe:iy that private persons liavc indulged in expensive 
hixuries wliile public institutions have fallen into decay. 
It is said that in tlie^ tinie of Pericles, the days of the glory 
of_Athenian oemocracy, one third of the revenues of 
the State were expended in plastic and architectural art, 
Avhile in the time of Demosthenes coniplaint is made of the 
shabbincss of public buildings. 

Avarice is injurious, though ])robably less dangerous, be- 
cause less seductive, tlian2)rodigality. The avaricious man 
sacrifices the end of life to the means and comi)els others to 
do so. lie may increase the wealth of the country, but he 
allows no one to enjoy it fully, and fails to put it to the 
best use. 

Expenditures are justifiable which tend to the develop- 
ment of our faculties. The requirements of ethics are that 
we should develop ourselves and help to perfect the rest of 
humanity. If we neglect our own highest development 
humanity suffers. When we weigh in the balance our own 
needs and those of others we should have this in mind. We 
should also strive to render ourselves independent, so that 
Ave may not become a burden to others. Our generosity is 
ill-advised if it results in our own impoverishment, and may 
produce more harm than good. 

Ethics requires self-sacrifice. Self-sacrifice degenerated 
becomes asceticism. Asceticism is self-denial for its own 
sake and not for others. It is like the perversion of charity. 
Charity in one of its forms, ahns-giving, was in the best 
days exercised for the sake of the needy, but when the 
Church became degenerate it was exercised for the sake of 
the giver, and became thoughtless, inconsiderate giving, and 
a curse to the world. 

We should cultivate incxclusive pleasures rather than ex- 
clusive jjleasures. A picture is an incxclusive ]»leasure. 
Thousands may enjoy it. Costly wines are exclusive pleas- 
ures. 



276 AN INTRODUCTION TO POLITICAL ECONOMY. 

Combination for use of things consumed increases their 
utility. A public library or a public art gallery serves as an 
illustration. Combinations for use of means of communica- 
tion and transportation make railway service cheap. Com- 
binations for cooking and serving food have been proposed, 
and co-operative kitchens may yet spare overworked mothers 
much toil and help to develop the home-life of the masses in 
great cities. 

■Wasteful Consumption. — We must first notice that 
that is often called a waste which is really a productive con- 
sumption. If nothing is left to show for what is consumed, 
we must call it a waste. If the consjnmption of an article 
like tea, however, really promotes domesticity, and cheers 
and soothes the mind, if it adds to the comfort of life of 
those who have few pleasures, it is by no means a waste. 
(Something is left to show for it. (Expenditures for recrea- 
Ition, for wholesome entertainments, for whatever promotes 
Idomesticity and sociability, are among the most productiveP 

It does, however, often haj)pen that nothing is left to 
show for consumption, and then it is unproductive con- 
sumption; a destruciion of concrete and abstract utility; a 

waste. 

f Every_chaEge of fashion involves waste, a partial destruc- 
tion of yalues_created. The Society of Friends, usually 
called Quakers, in resisting changes of fashion, pursues the 
only course which can be justified ethically. 

Fires are wasteful, and any effort to diminish their fre- 
quency or to extinguish them expeditiously deserves the 
heartiest commendation. 

Nature is continually engaged in wasteful consumption of 
economic goods, and man is obliged to wage a continual 
warfare with her. This waste goes on all the time, but the 
most important economic waste is caused by the death of 
man, the chief agent in production. 

The use of liquors and tobacco, which, when the totality 
of their results is computed, leave less than nothing positive 
to show for themselves, is a waste already treated. 



CONSUMPTIUN. 277 

Unwise c'oiisuin})liou is :i partiiil waslo, jiiul tlio Anu;rif;iii 
people is giiUtier than any" otlier civilized nation in this 
respect. "NVe have in the West ami Noi-tli conie to consume 
Avlieat ahuost alone for bread, and neglect corn and rye, and 
often the sole reason is that wheat is more expensive. Even 
with our wheat bread we use Hour so finely bolted that our 
bread tastes like wooden chips to a man witii a normal taste, 
and it is difficult in small towns to i)urchase Hour from 
whiMi the best elements have not been removed. We use 
onlv few kinds of vegetables in our rural districts and too 
often only few in the cities. We use i nsuftic ient variety 
of meats, and reject some of the best parts of meat-animals 
in~large sections of the country. Professor Patten has 
shown that this re nders food needlessly expensive. T])e 
variety of soils is great, and some kinds are suited for cer- 
tain food products, others for a different kind, still others 
for a third kind, and so on indelinitely. When we use 
varied foods each soil can be put to the best use, but when 
we demand principally one or two kinds of food we will 
find these kinds grown on land not adapted for them, as 
wheat on land suitable for maize or barley. 

Consumers and Producers not Two Distinct 
Classes. — Consumers and producers arc the same peoi)]e, 
drones excepted. Producers want consumers, but they only 
want those who have something to give in exchange. If 
they merely want to part with their things they can find 
beggars in abundance to relieve them. No\v something to 
give in exchange means production, and production increases 
demand for commodities. It is a mistake to look at economic 
life exclusively from the stand-point of either producers or 
consumers. The free-traders have been too inclined to con- 
sider consumers alone, tlie protectionists producers alone; 
and thus a tendency to one-sidedness has been fostered. At 
the same time it must be frankly acknowledged that there 
is more danger to be feared from an exclusive consideration 
of producers, because there are so many kinds of jiroduc- 
tion and their interests are so diverse. There is not the 



278 AN INTRODUCTION TO POLITICAL ECONOMY. 

same diversity of interests among men regarded as con- 
sumers. Nevertheless both extremes ought zealously to be 
avoided. 

Crises. — We come again to the topic of crises in 
industrial life. C rises are attended with a- glut in ^e 
market, and it is said that they are caused by over- 
production. A French economist, M. Jean-Baptiste Say, 
however, has developed what is called a theory of the 
market, which has quite generally been accepted byi 
economists. It is that there is no such thing as oveu-U 
production, and never can be until all wants are sat-J! 
isfied. He says that the remedy for apparent overproduc-i 
lion is more production. Men bring commodities to the 
market. What do they desire? Not money, says Say, but 
commodities, money being a mere medium of exchange. 
Now we have already seen that a consumer is a producer. 
If there is a deficiency of consumers it must be because 
those who would like to consume have not produced eco- 
nomic goods for excliange. Overproduction, so called, Js 
really underproduction, according to this theory. There is 
a large measure of truth in this theory. When are we most 
troubled with a glut in the market ? Undoubtedly when 
least is produced. When is there the most ready sale for 
commodities ? Undoubtedly when every body is at work».. 
or when most is being produced. 

There is, however, another side to the question. It is 
quite possible to produce a larger quantity of some CQjn- 
raodities, as potatoes, cotton, cloth, etc., than people need. 
More railways are often produced than the people need at 
the time. The effect of disproportionate production is 
this : Some commodities cannot be exchanged. Those 
who have pi'oduced them do not make their normal pur- 
chases^ There is a falling off in sales of some other com- 
modities, and among those engaged in producing these other 
wares" some cease to produce. Demand again falls off, and 
f still others cease to work, as already explained. -There is 
i. disproportionate production and overproduction of sojne 



COXSi'MI'TJOy. 279 

thiiifTs, aiiil tmaily generijl_Q_yoj'i.)n><liicli()n, owiji;^ to luidcr- 
coiisumption, due in lurn to lack of j)urclia>^iii^ powci-. 

The intervention of money is an ini[)<)i-tant factor. Un- 
doubtedly conunodities are in the end exchanged for com- 
modities, but the intervention of a medium of exchange 
])roduees weighty consecjuences. (Jommodilies are in the 
first instance exelianged for money, and all lial)ilitics must 
be met in money. Houses, lands, etc., can only indirectly 
pay debts, and at times cannot rescue one from bankruptcy. 
Changes in money-supply, especially a contraction of the 
volume of money, will render it impossible for producers to 
meet their engagements ; production will begin to diminish, 
demand will begin to decrease, and the result is apparent 
general overproduction. 

Ivemedies for overproduction or underconsumption, as 
one will, are many. W hatever _imiii-ii\rs industrial SDciety 
in any respect is a p artial remedy. It is especially desiral)le, 
however, to bring producer and consumer as near together 
as possible, because it often happens that mutually desired 
products cannot, as a matter of fact, be exchanged. Ob- 
structions to trade should be reduced to a minimum where 
they cannot altogether be removed. It may in this connec- 
tion be mentioned that toll-roads are among the worst of 
obstructions to free exchanges, and are an anachronism 
which no enlightened community should tolerate. 

Control of Consumption. — Sumptuary laws have existed 
in the past, and have attempted to control consumption, in par- 
ticular, to prevent extravagance. Sumptuary laws are now 
generally considered as antiquated, but it can scarcely be 
doubted that in the past, in a time different from ours, they 
have done good. Historical institutions generally have had 
good grounds for their existence, which they do not have when 
tiiey outlive the period for which they Avere suitable. As a 
rule sumptuary laws are not adapted to modern times. 

The tempeiaiHc agitation is designed to control consump- 
tion of one kind, and, whatever may be thought of particular 
measures, it is on the whole an excellent thing. It has arisen 



280 AN INTRODUCTION TO POLITICAL ECONOMY. 

out of the needs of the time. It does not diminish consump- 
tion as a whole, but only one kind of consumption. We 
have in Europe and America numerous remarkable instances 
of an increased general consumption following a decreased 
consumption of intoxicating beverages, showing that capital 
and labor have found more abundant opportunities than be- 
fore for profitable employment. 

Ohio and Massachusetts have attempted a partial control 
of the consumption of tobacco by making it a punishable 
offense to sell cigarettes to boys, and if any way to enforce 
the law can be found their example is worthy of imitation. 

The control of consumption is so difficult that it must be 
left for the most part to voluntary agencies, like the Church, 
and associations formed for this and other purposes. Rulers 
and leaders of society can do much by a praiseworthy example 
of simplicity and frugality. The_soyei;eigns of .PruMia>Jhe 
House of Hohenzollern, deserve commendation for their exam.- 
plejwhich has helped to make Germany powerful, while French 
sovereigns have helped to degrade France by extravagance. 
The alleged growing extravagance at our own federal capital, 
Washington, is to be deprecated as a national calamity. 

Curiously enough, one of the worst kinds of extravagance 
in the past, as in the present, is connected with funerals. 
This evil has become so great with us that a society has 
been formed expressly to correct extravagance at funerals, 
and the Bishop of the Episcopal Church for the diocese of 
New York, Dr. Potter, has become its president. 

Insurance is a control of certain kinds of consumption. 
Fire insurance, insurance against hail, against accidents, etc., 
is a contrivance whereby individual losses are dist^-ibuted 
among many, and the burden to any one reduced. It is a 
fine example of solidarity of the right sort. Life insurance 
is somewhat similar, although it is in some of its aspects 
more like accumulation by saving a part of one's income. 
Saving;s^_banks, building associations, mutual aid societies, 
and the like, help us to control consumption and to dis- 
tribute it advantageously. 



coxs[r.]frTi()y. 



281 



Analysis of Consumption. — An analysis of the con- 
sumption of individuals, families, and societies is most in- 
structive. An analysis of the cxpenditurea of a family is 
called a f amily budjj^et. Di\Edjuard Kngel, tlie former 
distinguished head of the Prussian Statistical Jiureau, has 
advanced the theory that it might he possible by a care- 
ful study of a sullicient number of fan^ily budgets for 
a period of years to construct a sort of social signal 
service. His idea is that changes in total expenditure and 
in expenditures for various items in a suflicient number of 
typical families could enable us to predict the coming of 
industrial storms. The theory has not, so far as the writer 
is aware, ever been fully worked out, but the thought is 
suggestive. 

The following tables copied from the Report of the Massa- 
chusetts Bureau of Statistics of Labor for 1885 are worthy of 
careful examination : 

EXGEL'3 LAW.-PRUSSIA. 



Items ok ExPENDmmB. 



1. Siibsistenco 

2. Clothing 

3. Lodging 

4. Firing and Lighting 

5. Education, Public Worship, etc 

G. Legal Protection 

7. Care of Health 

8. Comfort, menial and bodily recreation 



Total 100.0 



Peroektaoe op thr Expenditure of the 
Family of 



~pS 



to = ''A 

a s = 



'"' ■-•'> 3 t; 

rt = ^ o 



95.0 



G2^0"] 

113.0 ! 

12.0 

5.0 

1.0 



90.0 




10.0* 






"* c 5 S «^ 
i E 5 •" o 
<1 



50.0") 
lO I 
12.0 f^^- 
5.0 J 

Pi 
3.0 



3.0 
3.5 



15.0 



1100.0 



ilOO.O 



♦These figures foot up nine instead of ten. They are given as found in 
the report of the ilasaachusctts Bureau. 



282 



AN INTRODUCTION TO POLITICAL ECONOMY. 



" The foregoing table demonstrates the points upon the 
strength of which Dr. Engel projjounds an economic law. 

" The distinct propositions are : 
/ " First. That the^eater the income, the smaller the rela- 
tive percentage of ootlaj for subsistence. 
/""" Second. That the percentage of outlay for„^ clothing is 

Vapproximately th e sam e, whatever the income. 

"V " Third. That the percent age of the outlay for lodging or 

/rentj. and for fuel aijd lig'ht, is invariably the.jame, whatever 

ythe income. 

^ "Fojg^h. T hat as the income increases in amount the per- 
centage of outlay for sundries becomes greater." 



MASSACHUSETTS.— PEKCENTAGES OF EXPENDITURES.— AMOUNT, |T54 42. 



Items of Expendituee. 


Mass. Budgets, 
18S3. 


Engefs Prussian 
Law. 


Mass. Bureau 
Table, 1ST5. 


Average. 


Subsistence 

Clothing 


49.28 
15.95 

19.14: 

4.30 
10.73 


50.00 
18.00 » 
12.00 
5.00 
15.00 


56.00 

15.00 

17.00 

6.00 

6.00 


51.76 
16.32 


Rent 

Fuel 


16.25 
5.10 


Sundry expenses. . . 


10.57 


Totals 


100.00 


100.00 


100.00 


100.00 







COMPAEATIVE PERCENTAGES OF EXPENDITURES BY THE FAMILIES OF 
WORKING-MEN IN ILLINOIS, MASSACHUSETTS, GREAT BRITAIN, AND 
PKUSSIA. 



Items. 


Illinois. 


Massachusetts. 


Great Britain. 


Prussia.* 


Average. 


Subsistence. . . 

Clothing 

Rent 


41.38 
21.00 
17.42 
5.63 
14.57 


49.28 
15.95 
19.74 
4.30 ■ 
10.73 


51.36 
18.12 
13.48 
3.50 
13.54 


55.00 
18.00 
12.00 
5.00 
10.00 


49.25 
18.27 
15.66 


Fuel 


4.61 


Sundries 


12.21 


Totals 


100.00 


100.00 


100.00 


100.00 


ino.oo 



These tables will help us to understand the social troubles 
of our time. They show that the amount which working-men 

* It is to be noted that for Prussia a family of the intermediate class is 
taken. 



consumption: 283 

liavo ("or all llic liigluT wants aiul for health and rccroation 
i8 still extremely small. Civilization develops the higher 
wants, but the improvements of the distributive processes of 
industrial society have not kept pace with the development 
of these wants. 



Professor Patten's Essay on Consumption in Science Eco- 
nomic Discussion, his Premises of Political Kconomy, and 
his monographs Stability of Prices and IVie Consumption of 

Wealth. Roseher's Political Kconomy, English translation, 
Book IV. J. B. Say's Political Econo)ny, American edition, 
Book I, chapter xv, On the Demand or Market for Commod- 
ities. Temperance tracts and publications, including The 

Voice, of New York, and IVie Union Signal, the organ of the 
National Woman's Chi'istian Temperance Union, of Chicago. 



PART VI. 

PUBLIC FINANCE. 



CHAPTER I. 

I N T Fl D U C T R Y. 

Earlier economic treatises had no special part devoted to 
finance, but tisually included a few more or less valuable 
observations on taxation under some more general head, as 
" functions of government," or " consumption." Wlien it 
was included under consumption it was implied that gov- 
ernment consumed but did not produce, and such a sage re- 
mark as this embodied the economic wisdom of many a text- 
book : " That tax is best which is least in amount ! " The 
development of economic science has in recent years been so 
rapid that now arguments against any discussion of finance 
in an elementary treatise are likely to take this shape : 
" The subject of finance is so truly immense, and its peculiar- 
ities are so many and so far-reaching in their character, that 
it is better to make a separate science of it, at least a sepa- 
rate volume of a larger whole, and not to enter upon topics 
which cannot adequately be presented in short space." It 
is true that the difficulties of one who would say any thing 
about finance in ten or a dozen pages are not a light matter; 
yet it does not seem scientifically satisfactory to pass over 
one of the most important parts of political economy with- 
out a word. It is not, indeed, necessary. An impression 
of the nature and scope of finance may be presented to the 
reader without any attempt to enter into details, which would 
be simply confusing, and even misleading, in so short a 
space. 

What is Public Finance ? — It is often defined as the) 
science which deals with the acquisition of the public reve 
nues, with their management and their expenditure. If we 
13 



288 AN INTROD UGTION TO POLITICAL ECONOMY. 

regard it not as a science by itself we should substitute part 
of p'Utical economy ior science. It is th at part of ] 2oliti cal 
economy, etc. 

We often, and perhaps generally, say simply finance, in- 
stead of public finance, but as private finance and private 
financiering are used, public finance may properly be employed 
as more explicit. The use of the word here given is that 
which corresponds to the same word in the languages of the 
Continent of Europe, and is that which is found in the most 
careful English authors. Curiously enough, a careless em- 
ployment of finance has become too common, which renders 
it equivalent to a discussion of money and banking. We 
thus have popular works which profess to treat of finance and 
yet say nothing about it. Money and banking belong to an- 
other part of political economy. 

Significance of Finance. — The business ^f^ goyernraent 
is the largest business in any great modern nation. A man 
died a few years ago who left^his family two hundred mill^ 
ions of dollars, and his fortune was spoken of as colossal. 
Some time since thejinnual revenues of our various govern- 
ments in the United States, federal, State, and local, were over 
three^times that amount, and the author's investigations lead 
him to believe that they are now quite four times as much, or 
at least eig:lit hundred millions of dollars. The capitaliza- 
tion of the Western Union Telegraph, eighty millions or 
more, is considei'ed enormous, but the surplus revenue of the 
United States government above necessary expenditures 
for a single year would more than purchase all the tele- 
graph lines in the United States, even at their inflated 
valuation. 

The Snb-Treasnry System. — The business of govern- 
ment is so large and so penetrating in its character that it 
affects vitally every other business in the country. If our 
governments received a large surplus in money every year and 
kept it from circulation we would shortly have a stringency 
in the money market which would produce a terrible panic. 
It is, in fact, this, among other things, which renders our 



INTR OD UC TOR Y. 289 

surplus fodoral rovoniie so diflioult a problem. The United 
States alone aniuiig nations locks up its money. Thid-ia a 
feature of what is called our independent or sub-treasury sys- 
t epi. The federal revenues flow into these sub-treasuries and. 
can only get out in payment of claims on the United States, 
whereas other governments have some kind of connection 
with banks, perhaps national banks, and do not take out 
of circulation the money received. It Jias become necessary 
in jhe j>ast to pay interest on the federal debt, the bonds, 
before it was due, in order to restore the money to circula- 
tjoii, and at the jucsciit time bonds are purchased at a pre- 
mium before they are due in order to put the money in cir- 
culation. 

Government Business. — We have another range of 
considerations connected with the financial affairs of gov- 
ernment. Government is the largest employer of labor in 
the country, and all other employers and all employes are 
more or less affected by the manner in which it treats its 
employes. Shall government as employer be influenced by 
tlie.iiemauds.of ethics? Undoubtedly ; as government is an 
ethical person, government ought to be the model employer, 
insisting upon justice in service and granting justice in con- 
ditions of service and in its remuneration. 

G-ovemment Expenditures. — The importance of finance 
becomes even more a])parent when we become familiar Avith the 
magnitude of the revenues and expenditures of governments 
in modern times. The fact is often cited that the ex- 
penditures, of England from 1685 to 1841 increased forty 
times while the population trebled ; but this is only one of 
hundreds of facts, all equally striking, and this increased ex- 
penditure is equally found in every modern nation. The 
Frenchjbiidget, as the detailed statement of revenues and ex- 
penditures is called, exceeded one thousand m'llionsof francs 
inl828, for the first time, and there was general alarm on 
account of the large expenditures ; but since that time 
no budget has called for smaller expenditures, while in 
1 860 they amounted to two thousand millions ^f francs, and 



290 



AN mTBOBUCTION TO POLITICAL ECONOMY. 



since then they have never been less than that sum. In 1877 
they were over twajhousand six hundred millions, and, add- 
ing local expenditures, over three, thousand millions; as large 
an aggregate as the expenses of the people of the United 
States. The expenditures of Great Britain decreased after 
the Napoleonic wars on account of cessation of war expen- 
ditures, which are abnormal ; but we notice a steady ten- 
dency to increase since 1833, as indicated by these statistics : 
1833, £48,786,047; 1843, £55,360,511; 1859, £64,805,872; 
1874, £73,211,815, and including payment for Alabama 
award, £76,328,040; 1875, £74,328,040; 1880, £84^105,754; 
1885, £89,092,883; 1886, £92,223,844; 1887, /89,996,752 ; 
1888, £87,423,645. ■.-^,.'' - .;,-,,....-. 

The local expenditures of Great Britain, as of all other 
countries, have been increasing more rapidly than national 
expenditures. This table shows the increase in the federal 
expenditures of the United States: 



Years. 



1828 
1844 
1860 

1887 



Civil establishment. 



$3,676,053 
5,645,184 

27,977,978 
85,264,825 



Total expenditures 
less interest on tbe 
debt. 



Net ordinary total 
expenditure includ- 
ing interest, but not 
bond parchases. 



$13,296,041 
20,650,108 
60,056,754 

220,190,603 



$16,394,842 
22,483,560 
63,200,875 

267,932,180 



The following table shows increase in expenditures of 
federal government from 1796 to 1887, and increase in ex- 
penditures of fourteen States of 1796 during the same period, 
and an increase in expenditures of all our States: 

179'6. 1887. 

Expenditure for civil government in States named. $1,000,000 $65,000,000 

Federal expenditure 5,790,651 267,932,180 

Expenditure of all tlie States 1,000,000 101,534,523 

The State taxes of Ohio increased forty-six times from 
1826 to 1886, and the taxes for local purposes over a hundred 
times. The local taxes of New York increased fourteen times 
between 1827 and 1887. 



I y TROD UCTOR Y. 291 

These increased cxiMWidiliires ;ire not diu; to dislioiiesty. 
Probably on the whole iulininistration of goveniiiieiit has 
improved rather than deteriorated during the present eent- 
ury, and ula-re government is most undoubtedly honest we 
find larger inerease than in many otlier places. The ad- 
ministration ot" American cities is ineliicient and too often 
corrupt, but the administration of Englisli and German 
cities is unquestionably pure, and tliat of German cities, con- 
duct«.'d by men traineil for this work, is skillful. Yet the ex- 
penditures of these cities appear to have increased as rapidly, 
and in many instances, in Germany at least, more rapidly, 
than those of American cities. We are dealing with world- 
wide phenomena. Tlie explanation is easy, and proves what 
has already been stated in this book: that while government 
activity is wiser than previously it was never before so ex- 
tensive and important. The functions of government are 
measured in a rough sort of way by expenditures of gov- 
ernment, and after we have made due allowance for depre- 
ciations of money and other counteracting forces it must be 
ailmitted that the present generation, still more the present 
century, has witnessed a marvelous and on the whole bene- 
ficial extension of tiie business of government, accompany- 
ing a diminution in petty interferences with individual 
action. Public schools occur to one as a new source of ex- 
penditure every-where in the civilized world. ISewerage, 
sanitation, gas, and electric lights, public parks, public baths, 
public libraries, all these are among new items in the budgets 
of cities. Fine State universities all over the world are being 
supported by enlightened democratic sentiment out of pub- 
lic funds, and it is probable that in a not distant future some 
of the greatest American universities will be found among 
the best of the State universities of our West. Expendi- 
tures for works of art are common, especially in Europe, but 
Boston and New York do something to keep up art galleries, 
and probably directly or indirectly, as by exemption from 
taxation, many other cities make contiibutions to art cult- 
ure. Exj)enditurcs for police have only recently become 



292 AN INTRODUCTION TO POLITICAL ECONOMY. 

enormous, and it is a disgrace to some AiJiencan . cities that 
their police costs as much as their public schools, though it 
is in keeping with the superstition that government must 
only repress and not prevent wrong-doing. * It is less than 
fifty years since Sir Robert Peel replaced in England the 
old constabulary with a regular police force, and that is why 
the police are called sometimes " bobbies " and sometimes 
" peelers." 

We may siy that, with some unfortunate exceptions, these 
increased expenditures of governments are a sign of health, 
but do not, fairly considered, reveal any tendency on the ]»art 
of governments to absorb an undue proportion of our in- 
dustrial life. 

Comparisons of Expenditures and Revenues of 
Governments. — Comparisons of expenditures and revenues 
of governments are misleading unless made with care. The 
United States, Germany, and Switzerland are federal gov- 
ernments, while France, Italy, Great Britain, and most coun- 
tries are single States. What the central government of 
France does embraces what federal and State governments 
together do in federations. But when even this is borne in 
mind many other facts require attention. Wliat a city in 
one country does a province or a State may do in another. 
We must also ask, " What is received for what is paid out ?" 
The mSdisBval custom obtains in Baltimore of compelling 
every one to sweep the street in front of his house, a most 
expensive and wasteful proceeding, yet one which does not 
appear in municipal expenditures. It costs twenty times 
what it would if done by a well-organized municipal service, 

* New York city now spends more for police than for education. Accord- 
ing to the Real Estate Record and Builder^s Guide of that city the expenditure 
cfNewJYork for police in 1887 was $4,235,867, while that for edu£.a,tjpn 
was only $3^994,088. While expenditure of tlie city for police incrfijised 
63 per cent, that for education increased only 17 per cent. Berlin is often 
called til e "model city;" and it is generally said that there is no bet'er 
oily government. According to a recent article in the New York Eoening 
Post, Berhn spends nearly fo ur times as much for education as for 
police. 



L\TRaI>iCT(>HY. 293 

which would iiovorthi.'lo.s.s increase our taxes. The increased 
taxation would be a saving. We must ask in comparisons 
of inuniciiial expi-ndilures, "Are streets well j)aved, well 
cleaneiljSpriiikletl with water in the sunnner? Are ample parks 
provided, schools, libraries, art galleries, and the like?" 
AVejinust further distuiguish between expenditures and reve- 
nues from taxes because there are other sources of revenue 
than taxation. American city governments cost much in 
pi-oportion to what they give, because they neglect these 
othijr ijources of revenue. European cities instead of paying 
foj^ services like gas, electric liglits, etc., make them a source 
of revenue. It costs the tax-payers less to govern the city 
of Herlin and to provide itK maguificent schools of all grades, 
to ])ave the streets as they are not paved in any American 
cky, to furnish parks, and do a great many tilings not dreamed 
of with us, than it does those who live in Boston to govern 
their city, whicli is less than half the size. 

Reveniies of Govemment.— There are tliree perma- 
nent sources of revenue. These are, first, productive do- 
mains; second, injiustries; thjrd^ taxation. There is one 
chief temporary and limited source of revenue ; namely, 
loans, which must be repaid out of the other three. TJiere 
a re al so various minor sources of revenue, like gifts, escheats, 
or proper ty which fails unto the State in default of heirs, " con- 
science money," that is, money sent Mdthout name ny those 
who have defrauded the government, and the like. Gifts 
amount to more than is ordinarily supposed, although, of 
course, relatively they are a small matter. 

Formerly gifts were frequently made for general expendi- 
tures of government. Recently a citizen of New Jersey left 
the United States nearly a million dollars to be used in pay- 
ing the federal debt. Gifts are now more generally made for 
special purposes, as when Mr. Smithson left the United States 
government half a million dollars to be used in the founda- 
tion of the Smithsoninn Institution for the advancement of 
science. A Maryland citizen has witliin a few months left 
one of the counties in the State, Harford, nearly a hundred 



294 AN INTROD UOTION TO POLITICAL ECONOMY. 

thousand dollars for the improvement of its public roads. 
While the writer was in Heidelberg a fine road was being 
made in that city from the proceeds of a private gift. These 
are simply illustrations. Public schools I'eceive many gifts, 
but not so many and so important gifts in the United States 
as private foundations, but in other countries the case ap- 
pears to be different. France, and particularly Paris, has 
received large gifts. When our governments become 
better, gifts will undoubtedly be often received by them. 

Productive Domains^ yield _coMiderabJe sums in_ Gei-- 
many. It is generally thought that governments should part 
with agricultural land. Not a great deal of arable land is 
retained by governments, although there is not so strong a 
tendency to part with what remains as there was a genera- 
tion ago. German States began to sell off their landed 
domains some time since, forests excej)ted, because it was 
supposed that private parties could manage them better, but 
later exj^erience seems to throw doubt in that counti'y on 
this assumption. Land may be kept and leased ; the title to 
our American western domains might be kept by the United 
States or vested in our separate States and the use parted with 
for a period until we have further light on the best form of 
industrial organization ; but no one would like to see our 
American States or federal government engage extensively 
in agriculture. Model farms, or agricultural experiment 
stations, may be maintained, as at pi'esent. 

Industries except those of a monopolistic nature have not 
succeeded well as government undertakings as a rule. Model 
establishments may be maintained, like model farms. Some 
important industries, like the manufacture of fine china, took 
their origin in government establishments. Natural monopo- 
lies ought to yield a large part, ultimately, perhaps half in 
great cities, of public revenues, but ordinary manufactures 
should be rejected. Agriculture, like manufactures and com- 
merce, is the proper field for private enterprises. 

Public Debts. — Great national debts are something com- 
paratively new in the world's history, their origin being so 



IS'TRODUnTORY. 295 

recent as the reigti (^f William and I^Iary in Ei)<TlaiiJ. How 
important they aro miw will become apparent by this quota- 
tion from Pr<2_fi\ss()i- llrnry C'. AJaiu'a admirable woik on 
Public JJcbU : "The c'ivili/e<l governmeuLs of IIk^ ^McseuL 
day^ are resting uiidcr ;i iMiiilru of irKlcbicilncss (•oiii|)uted at 
$-J 7^000,000,000. This sum, which does not include local obli- 
gations of any sort, constitutes a mortgage of $722_upon each 
st|^uare mile of territory over which the burdened governments 
extend their jurisdiction, and shows a ixt capita indcbted- 
"?i?_Qi- '^-■^i^-"F^"^ their subjects. The hA:\.\ iuiimuiiL nl na- 
tional obligations is e<{ual to seven times the aggregate annual 
revenue of the indebted States, At the liberal estimate of 
$1 50 per day, the payment of accruing interest computed at 
Hve per cent, would demand the continuous labor of three 
millions of men. Should the people of the United States 
contract to pay the principal of the world's debt, their en- 
gagement would call for the appropriation of a sum equal to 
the total gross product of their industry for three years ; or, 
if annual profits alone were devoted to this purpose, they 
would be enslaved by their contract for the greater part of a 
generation." 

Alarm has been often expressed on account of these debts. 
They are undoubtedly a misfortune, and should be paid ag 
soon as possible. Serious apprehension does not seem to be 
called for so far as Germany, England, and the United States 
are concerned. The productive property owned by Germany 
is more than sufficient to pay her debts, the railways alone 
in several of the German States paying entire interest on the 
debts and leaving a surplus. England is gradually making 
headway against the burden of debt, and the author's inves- 
tigations have shown that American States and cities, as 
well as the federal government, ai'e rapidly extinguishing 
their debts. Comparatively little is owed. Many States owe 
nothing; in others the debt is merely nominal, all the bonds 
being owned by the State. A few Southern States alone are 
having trouble with their debts, and these will doubtless 
soon emerge from their difficulties. Our cities, too, are in 
13* 



296 AN INTRODUGTION TO POLITICAL ECONOMY. 

this respect placing themselves on a solid basis. Americans 
may feel warranted in optimistic views in the main, so far 
as public debts are concerned. 

Constitutional Limitations.— There is a tendency, 
springing out of fright partly premature, to place undue 
constitutional restrictions upon the power to create debts. 
This tendency ought;" to be checked. It places States and 
cities at a disadvantage as compared with private corpora- 
tions. It also tendsjo throw into the hands of private cor- 
porations enterprises which cannot be paid for out of one 
year's revenues and yet properly belong to the public. Gas- 
wprks are.An^illustration. When great, improvements, to 
last for generations, are to be eifected it is proper that 
part of the burden should be borne by tax-payers in future 
years, and this can only be effected by loans. At the 
present time excessive limitations, unworthy of a free peo- 
ple, make it impossible for some States to improve their 
own property. That is the case with Maryland, which owns 
a canal for the impi-ovement of which her constitution will 
let her borrow no money ! Provision should be made for the 
extinction of all debts within thirty-five years, or say forty 
as a maximum, that the present may not unduly burden the 
future, and especial precaution should be taken against hasty 
action. In Baltimore no loans can be made until the people 
have by vote approved of them. One of the most distin- 
guished of the mayors of American cities has expressed the 
fear that even with universal suffrage this would tend to 
ultra-conservatism and prevent improvements really needed. 
The writer hardly thinks this fear warranted by experience. 

Land Nationalization and Municipalization. — Mr. 
Henry George has come forward with a scheme for the abo- 
lition of taxation as ordinarily understood. His scheme is 
stated thus in his own words printed in his organ. The 
Standard: 

" 7%e Standard advocates the abolition of all taxes upon 
industry and the products of industry, and the taking, by_ 
taxation upon land values, irrespective of improvements, of 



IXTRODUCrOHY. 297 

tlie^ annual rental value of all those various forms of natural 
opportunities eniLrat-ed under the general term, Laud. 

"We hold that to tax labor or its products is to di.scour-i 
age industry. Wc hold tliat to tax land values to their full 
amount will render it impossible for any man to exact from! 
others a price for the ])rivilege of using those bounties of 
nature in whieh all living men have an equal right of use; 
that it will compel every individual controlling natural op- 
portunities to utilize them by employment of labor or aban- 
don them to others; that it will thus provide opi)ortunitie3 
of work for all men, and secure to each the full reward of 
liis labor; and that as a result involuntary poverty will be 
abolished, and the greed, intemperance, and vice that sprinu,- 
from poverty and the dread of povert}^ will be swept away." 

He proposes that the State shall take the pure economic 
rent of land, and thinks that this will abolish poverty. It/ 
might pi-event ])eople who do not care to use the land from 
keeping land away from those who want to use it, but how 
it would bring about all the predicted blessings it is difhcult 
for most people to understand. With the best will and with 
every desire to be un]jrejudiced the writer has never yet 
seen how pure economic rent of agricultural land can be 
separated from the annual value of the improvements on and 
in the land. Apart from all this, the confiscation of rent, or 
even if it be called by so gentle a name as appropriation of 
rent, by the public without compensation to present owners 
will never, in the writer's opinion, appeal to the conscience} 
of the American public as a just thing. Abstract reasoning 
based on assumed natural rights will not convince a modern 
nation. It is but another illustration of the danger of rea- 
soning based on natural riijlits. 

It is easy in cities to separate pure economic rent from 
rent for improvements, and it is done a thousand times a 
day. The principal evils of private land-holdnig are seen in 
cities, and the objections to land nationalization do not 
wholly apply to land municipalization. Many will favor the 
latter who reject the former, but even in this matter one 



298 AN INTRODUCTION TO POLITICAL ECONOMY. 

should proceed cautiously. No confiscation or thought of 
confiscation should for a moment be tolerated, but if great 
and expensive changes are desired the burden should be dif- 
fused by means of inheritance and other taxes throughout 
the community equitably. Suggestions for some cautious 
steps in land municipalization are offered in the author's work, 
Taxatioji in American States and Cities, in chapter iv of 
Partin. 



CHAPTER II. 

T A X A T I N. 

Private Property. — As the State — and this word is used 
in its generic sense, inehuling our federal government as well 
as separate commonwealths — determines what shall be private 
property, it determines the conditions of its existence, and it 
will be found, on examination, that nowhere has there ever 
existed any such thing as absolute private property. The 
rights of pi'ivate individuals have always been of a more or 
less limited nature, and among the rights reserved by the 
people in their organic capacity will be found in every civil- 
ized State the right to take a portion of the wealth produced 
for such purposes as the law-making power may deem fit. 
The aim, of course, should be the promotion of the public 
welfare. 

It has been said that there are no limitations to the right 
of the Stale to take private property. Canon Fremantle says 
that as the State for its purposes can require us to give up 
our lives, it also can ask us to surrender our private property. 
John Stuart Mill holds that public utility is the only basis 
on which private property can rest, and he argues against 
socialism because he believes that the public welfare is best 
served by private property in the greater part of the instru- 
ments of production. 

Constitutions in the United States are the basis of the in- 
stitutionof private property, and thus largely control taxa- 
tion, but constitutions themselves of course change from time 
to time and are but one kind of law; namely, the fundamental 
law to which other laws must conform. 

We see, then, that the right to tax is a part of the right of 
private property. Both have grosvn up together, and both 



800 AN INTRODUCTION TO POLITICAL ECONOMY. 

are defended alike by constituted authorities. It may be 
said that to attack the one right is to attempt to invade the 
other. Curious as it may seem, Henry George, who denies 
the right of private property in land, disputes also the right 
of government to lay taxes, as ordinarily understood, and 
calls taxation robbery. 

Our conception of taxation removes a multitude of con- 
fused notions. Lawyers often say that taxation is a pay- 
ment for protection, yet their law books tell them that those> 
laws which apply to payments and debts arising out of fail- 
ure to make payments do not at all apply to taxes. It is 
sometimes attempted to defend public schools as adding to 
the value of private property, as if that were supreme, whereas, 
it is solely a question of the welfare of the land, and, of 
course, property is but a means to an end, and the end is 
man. The elements of private contracts are not present in 
taxation. 

G-overnment a Partner in Production, — Taxes have 
been defended on another ground. It is said that govern- 
ment participates in all production, and is as much a factor 
in the creation of wealth as land, labor, or capital. Truly 
this_is_sa, for wjihout^governmeritjKe.^ should have anarchy 
and a return to barbarism, which would destroy all produc- 
tion. It is then held that, as government is a factor in pro- 
duction, it is entitled to a share of the wealth produced. This 
is a sound position, but peculiar principles regulate the share 
of government. The portions which go to land, to labor, and to 
capital are determined chiefly by voluntary agreement, where- 
a? government by virtue of its own sovereignty determines 
what share it will take. It may be asked, then. What guar- 
antee have we that government will not take an undue share 
of the annual income of the country ? We have the same 
guarantee that we have that government will not abuse its 
other powers: the jnoral sense of those who govern; also 
their self-interest. Government in a republic is after all only 
the people in their organic capacity, and the question is this: 
Will the people injure themselves, or suffer themselves to be 



TAXATKtS 301 

i njured y JSoU'-go vernment rests upon the hypothesis tha t 
they wjll not. 

As it is essential that any reform of taxation should be 
based on a clear conception of taxation, it is further neces- 
sary, if we \\H)uld act well, that we should proceed with a 
correct understandiiiLC <>f some general propositions ajiplica- 
ble to taxati(»n. 

It is first of all to be remembered that t axat ion in itself is 
not an evil; it is a_b]essi_ngi This sounds paradoxical; does 
it not ? Nevertheless, it is true, as it will be found on an ex- 
amination of the historical development of constitutional gov- 
ernments that taxation was the instrumentality whereby the 
common people obtained their liberties. Monarchs needed 
revemies, and were obliged to ask for them; as a matter 
of fact, they could not secure sufficient and regular revenues 
otherwise. These revenues liave been granted condition- 
ally. "Yes," the people said to their sovereigns, " we wil l 
grant you the revenues if you will grant us our demands." 
Thus step by step po])ular rights have been secured. The 
total abolition of taxation would undoubtedly be one of the 
most effective and most dangerous blows to popular govern- 
ment Avhich it could well receive. 

T axatio n Increases -with F reedom. — Very generally 
increased freedom is accompanied by increased taxation. Com- 
pare despotic R ussia \s State expenditure for schools, thirteen 
cents_j)er capita, with that of the enlightened and free re- 
jjublic, the State or canton of Zurich, in Switzerland, one 
dollar and twenty-five cents j)er capita. It maybe, however, 
more correct to say that go\ernmental expenditures are large 
in all civilized nations; for expenditures are one thing and 
taxes are another, because there are other sources of revenue 
than taxation. 

Snr dl expe nditures mean small results, and no money we 
pay begins to yield such returns as money paid in taxation, 
provided always that it is prudently expended by a good gov- 
ernment. Let a small house-owner in a city like Baltimore, 
who pays, say, fifty d )llar8 a year in taxes, reflect on what .he 



§02 AN- INTR OD UCTION TO POLITICAL ECONOMY. 

receives in return. HejiecidKes,. dollar for dollar, fivejimes 
as much as for any ottier expenditure.^ Streets, libraries, 
f ree_ schools, protection to property and. , person, including 
health department, pleasure-grounds royaj in their magnif- 
icence — all these are placed at his service. What private 
corporation ever gave one fifth as much for the same money ? 
When we compare various countries at the present time, we 
find that expenditures of barbarous and backward countries 
are small. In some, doubtless, there is no real taxation, for the 
tribute of the East is different in its nature from taxation, it 
is more like ransom; something exacted of a subjugated people, 
not self-imposed taxes. So if we compare the past with the 
present we shall find large increase in expenditures with ad- 
vance of civilization. 

Taxation Increases Production. — Another advantage 
of taxation is mentioned by the Scotch political economist 
McCulloch. This advantage of taxes will be described 
in his own words: They stimulate individuals to endeavor, 
by increased industry and economy, to repair the breach 
taxation has made in their fortunes, and it not infrequently 
happens that their efforts do more than this, and that, con- 
sequently, the national wealth is increased through increase 
of taxation. 

" But we must be on our guard against an abuse of this 
doctrine. To render an increase of taxation productive of 
greater exertions, economy, and invention, it should be slow- 
ly and gradually brought about, and it should never be car- 
ried to such a height as to incapacitate individuals from mak- 
ing the sacrifices it imposes by such an increase of industry 
and economy as it may be in their power to make, without 
requiring any very violent change in their habits. . . . Such 
an excessive weight of taxation as it was deemed impossible 
to meet would not stimulate but destroy exertion. Instead 
of producing new efforts of ingenuity and economy, it would 
produce only despair." 

Let us consider another paradox: no country was ever yet 
ruined by large expenditures of money hy the public and for 



7'AXATIOy. 303 

the public. Countries have been ruined by evils connected 
with taxation. Robbery and extravaLcanco liave frequently 
accompanied both expenditures of ^^overnmeiit and taxation, 
and these have ruineil great nations. Konie may be cited 
as an instance. The case of France before the Revolution 
is also instructive. Books are full of the evils of burden- 
some taxes in pre-revolutionary France, but the truth is that 
the total amount raised by taxation in France was ridicu- 
lously small as compared with nineteenth century taxation. 
The trouble was that the burden was unjustly distributed, 
and the wealthiest classes shifted the taxes on the weak and 
defenseless.* France has since tlien prospered under heavier 
taxation. The taxes over which our forefathers in this 
country and in England fought, bled, and died were not 
large, and the taxes in themselves were not the real griev- 
ance. It was evils connected with taxation against which 
they successfully struggled. 

Ptiblic Parsimony. — Let us next turn our attention to 
some of the evil results of undue economy, or more properly 
speaking, niggardliness. 

The Chautaiiquan in its issue for October, 1888, alluded 
to the case of Duluth, Minnesota, and Denver, Colorado. 
Typhoid fever broke out in both cities last fall on account 
of failure to spend suflicient money for public health; and 
a few years ago, Memphis, Tennessee, lost two thirds of 
her population and one fourth of her commerce on account of 
a niggardly public policy. " And still," says the editor of 
T/ie Chautaiiquan, "city councils hesitate about incurring 
the expense of sewers and water-works." 

A scandal has arisen in Brooklyn about overcrowding in 
an insane asylum, and short-sighted parsimony in cities is 
continually leading to waste and destruction. Our great 
cities are now failing to provide sufficient school accommoda- 
tions for children of school age, and large numbers are grow- 
ing up to take their place among the ignorant and vicious 

• Vauban, one of the pre.ilest of the French economic writers of the 
eigliteeulh century, brings tliis out clearly in his work, Dime Royak. 



304 AN INTRODUCTION TO POLITICAL ECONOMY. 

poor. We can see in our national capital many results of 
the idea that that is the best administration which spends 
least. It is on that account that Congress refuses to pay the 
superintendent of schools in Washington a salary in pro- 
portion to the importance of the office. It is on this account 
that Congress has never yet made a decent appropriation for 
the library of the Bureau of Education, which is doing so 
valuable a work. It is on this account that heads of bureaus 
will not ask for money which they know they could use for 
the public advantage. It is on this account that clerks have 
actually found it difficult to get blotting paper and pencils 
for their offices. It is on this account that Congress reduced 
the appropriation for our national library building from $10,- 
000,000 to $4,000,000 — a shame and humiliation to us. How 
could money be better spent than in erecting a suitable 
building for the greatest library in the country ? Ought it 
not to be a grand building to symbolize the value of intel- 
lectual treasures and to impress u^Don the senses the nature 
of true riches ? Now the building must be stripped of all 
ornamentation. One Congressman said truly, " Ten millions 
is, after all, only a per capita expenditure of twenty cents." 
But another Congressman replied, " Twenty cents means 
three loaves of bread." Perhaps this was a bid for labor 
votes, but could demagogism go further ? The best part of 
the press laments this unseemly parsimony, but it should re- 
member that it is a legitimate outcome of the notion that 
that is the best administration which spends least. 

We must guard against parsimony as well as extravagance, 
and in some respects the former is more dangerous, because 
it more readily conceals itself beneath the mask Qf_ patriot- 
ism. We praise a private individual who spends bountifully, 
when his expenditures are justified by results. The case of 
a city is similar. We must be very careful, very prudent. 
What is needed is a move careful examination of particulars. 
We praise and we blame too much " in a lump." To cities 
and countries, as well as to individuals, does this proverb of 
Solomon apply : " There is that scattereth and yet increas- 



7'.1.V'.17V6»A'. 303 

eth; aud tliuiv is that withlioldclli moiv tli.in is meet, but it 
tendcth to poverty." Tliis is emphasized on account of the 
vast amount of nonsense talked about the hirj^c; I'xpendituros 
of States anil cities. More or less is wasted, mure or less 
stolen, but, after all, comparatively little; and we observe that 
governmental expenditures have increased most rapidly where 
there is no susj)icii)n, even, of corruption. Those are looking 
for a I'topia who seek to reduce very greatly expenditures 
of modern States and cities. We can make no headway 
against a strong current of national life like that which brings 
about increased expenditures of governments. We must 
rather put ourselves in it and try to guide and direct it. 

We liave three main facts to bear in mind: 

L_We must set our faces against all extravagance, jobbery, 
and robbery. 

2. We must avoid the *' too much " and the " too little." 
Pr uden t liberality will yield best results. We must look 
ahead. To conserve future interests is one of the special 
functions of government. 

'.i. Itjsji hard thing for some to live under present burdens. 

The remedies for the evils connected with taxation are in 
general of two kinds: 

1^ Better adjustment of the burdens of taxation. 

2. Better utilization of public resources. 

1 . Better Adjustment of the Burdens of Taxation. 
— Our_natiqnal taxes fall cliieiiy. on comm;)ditieSj and taxes 
of this kintl are called indirect. They are not proportioned 
to the value either of the property or of the income of citi- 
zens, and are very generally regarded as unjust to the poorer 
classes unless counterbalanced by other taxes which bear 
more "heavily on the rich than on the poor and well-to-do. 

Indirect federal taxes are of twokmds: customs duties, or 
ta.\es on imported commodities, and internal .re.Y.QiUJe, or ex,- 
ci8e_ taxes, as they are also technically called, or taxes on ar- 
ticles produced in the United States. Internal revenue taxes 
are now confined to a few products, like oleomargarine, to- 
baccpj and intoxicating beverages, the two latter yielding 



806 AN INTRODUCTION TO POLITICAL ECONOMY. 

nearly all of the internal revenues. Among thinkers there 
seems to be a general sentiment in favor of the retention of 
taxes on articles produced in the country which are now 
taxed by the federal government. The question of free 
trade and protection is not involved. When the national 
government depends exclusively upon revenues from taxes 
on imported articles the revenues are too uncertain and too 
irregular, and yield least when most is needed. The^ State 
and city revenues are largely raised by taxes on property. 
S uch t axes, and taxeson incomes, are called direct taxes. 

Property in States and cities is generally valued and all 
taxed at a uniform rate. The difficulty is that real estate, 
that is, lands and houses, is visible and can readily be found 
by tax assessors, while a great deal of property — say one hali^ 
of all property — is in the form of stocks, bonds, instruments 
of credit, and the like, and often cannot be found at all. The 
result is that real estate generally pays an undue share of taxes. 
Competent business men in Boston, including the president 
of the Boston Merchants' Association, Mr. Jonathan A. Lane, 
have estimated that in^oston perspnaLproperty is four times 
as valuable as real estate, although it is assessed for onl^^ one 
fourth as much. The problem is a better adjustment of the 
burdens of State and local taxes, so as to make those pay 
their share who own invisible or easily concealed property; 
also so as to make that considerable class contribute something 
to the support of government who have little or no j)rop- 
erty, but enjoy, nevertheless, large incomes, sometimes larger 
than the accumulations of the life-time of the ordinary man. 

Income Tax. — An income tax seems the most pi-omising 
remedy, but against this there is in many quarters an unrea- 
sonable prejudice. All efforts, however, to find personal 
property have so far proved unavailing, and there is no pros- 
pect that they will succeed better in the future. Space is 
too limited to treat at length of this subject. It may be said 
that while general personal property taxes become worse and 
worse the longer they exist, wherever a rational kind of in- 
come tax has been laid, as in Switzerland, Prussia, and En- 



TAA'ATJOX. 307 

fj^land, thp longer it lasts tlu' better it works, ami the more 
general the popular approval. It is th e on ly way in whicli a 
larjre anil intluential and even rieh elass can be made to bear 
its fair share of taxes. Where this elass, including profes- 
sional men, is exempt from taxation its members are apt to 
become careless and indifferent about government — poor 
citizens. Income taxes are in har m()ny wi th the democratic 
tfe ntime^ it of popular government. 

Inheritances and Bequests can be made to yield more 
than at present without any infringement of the rights of 
individual property. Colla^tcial inheritances ai-c taxed by 
New York, Pennsylvania, and ^laryland, but why shou]d 
collateral inheritance apart from a will be allowed at all ex- 
cept among near relatives ? Why should thii'd cousins in- 
herit from one another at all unless money is left by will ? 
Are third cousins nearer to one than the town or city in which 
one has lived, and where one has been aide to acquire a fortune ? 
The extent to which intestate collateral inheritance is carried 
is a survival of the sentiment of the time when people lived 
in clans, and is ridiculous m our day. Right and duty should 
be co-ordinated. Am I compelled by law to support an uncle 
who is unable by incapacity to earn a livelihood ? Then I 
should inherit from him; otherwise not, unless he leaves me 
property by will. The property should go to the State in the 
absence of near relatives when no will is made. The enlight- 
ened Englisli jurist, Jeremv' Benthara, wished to restrict in- 
heritance and extend escheat, and thus abolish taxation alto- 
gether, but this is going too far. 

Several terms must be explained which readers will meet 
with in their studies in finance. Proportional taxes are 
taxes in exact projiortion to the property or income taxed. 
The rate is (•<)ll^t;illt : oi.c per cent., two per cent., or three 
per cent., as the case may be, throughout. Progressive taxes 
are taxes with an increasing percentage wiili increasing 
property or Income: a^ one per c ent, on the first thousand 
dollars taxed, two per cent, on the second thousand, and the 
like. I'rogressive taxation is often called graduated taxa- 



308 AN INTR OD UCTION TO P OLITICAL ECONOMY. 

tion. A t ax Is re gressive when the rate per cent, increases 
as the property taxed decreases. If ajnan with five thou- 
sand dollars is taxed two per cent, and one with three thou- 
sand is taxed three per cent, this is regressive taxation. 
Business-license taxes in Maryland, and generally in South- 
ern States, are regressive. Indirect taxes are said to be, in 
their effect on the citizens, regressive. When we have one 
uniform rate of taxation but unequal assessment, the wealthy 
being assessed relatively less than the well-to-do and the 
poor, we also have regressive taxation, 

A tox is digressi ve if a certain sum is exempt from taxa- 
tion,_and all above that sum is taxed at one uniform rate. 

If all incomes of six hundred dollars are exempt from 
taxation and all incomes above that sum and only on that 
excess were taxed, say one per cent., it would be digressive 
taxation. Income taxes are often digressive. Digressive 
taxes are also called progressional. 

2. Bet ter Utilization of Public Resources, — By this 
is meant that public proj)erty and its use should be paid for. 
Cities and States should stop making presents to corpora- 
tions. If street-car companies use the streets they should 
pay for the privilege. This is sometimes done, but too 
often the public is robbed. The Baltimore street-car compa- 
nies, as has already been stated, pay to the city nine dollars 
for every hundred they collect, but this is not enough. 
When five-cent fares are charged, street-car companies in 
great cities can sometimes afford to pay as high as forty or 
fifty dollars to the city for every hundred they collect. 
Similar principles should be applied to other coi-porations 
using streets, like gas, electric lighting, telephone companies. 
It is, however, best for the city to manufacture its own gas 
and electric lights and to provide itself with water. This 
part of our subject has already been sufiiciently discussed for 
present purposes. 



PART VII. 

THE EVOLUTION OF ECONOMIC SCIENCE, 



CHAPTER I. 

INTRODUCTORY. 

The explanation already given of economic life would in 
itself lead us naturally to look for a corresponding evolution 
of economic science, and this has indeed taken place. Every 
economic system, like every philosophical system, is to a 
greater or less extent a mirror in which is reflected the aims, 
the character, the time-spirit — in short, the entire life, na- 
tional, mental, spiritual — of the period when it arose and of 
any period in which it received support, and of the place 
where it arose and of any other place where it gained sup- 
port. A man can no more escape entirely the influence of 
Ins environments than he can lift himself over a fence by 
tugging at his boot-straps. One writer will reflect one part 
of the life of the people, a second another side of this life, 
and so on indefinitely. Thus we have a picture of the con- 
flicting interests of the age. Dissatisfaction with an age 
and attempts at reform are likewise products of time and 
place, and perhaps more clearly than any thing else reveal its 
true character. This must not be regarded as an expression 
of political fatalism, for the will of man is always a main 
factor to be considered. 

These considerations show us the nature of the evolution of 
economic science and reveal to us the utility of the study 
of this evolution in the history of political economy. The 
jtresent is a product of the past. 

The history of political economy points out past errors and 
enables us to avoid a repetition of them. It trains us in 
habits of economic reasoning. Political economy can never 
give ready-made answers to all the perplexing questions of 
practical life, and that for this reason: the present is never 
14 



812 AN INTRODUCTION TO POLITICAL ECONOMY. 

quite like the past. Some new element is always involved. 
Nevertheless, old mistakes are often still mistakes when tried 
again, and these can frequently be avoided by a knowledge 
of what has been. 

A study of the evolution of economic life and its proper 
science may reveal to us the course of progress. It may — 
indeed it does — reveal to us powerful on-moving currents 
which it were folly to attempt to turn back, but which, nev- 
ertheless, can be guided and directed within certain bounds. 

The Physiocrats. — Political economy, as a distinct sci- 
ence, began when there was first an attempt to treat system- 
atically the general facts pertaining to the entire economic 
life of society, separating them from other facts as one 
branch of knowledge. This was first done in the latter half 
of the last century by writers of a French school whom we 
call Physiocrats. Political economy is, then, little more than 
one hundred years old. 

Political economy did not, however, come at once suddenly 
into being. Economic ideas are found in all the greatest 
writers of the past on politics, philosophy, and religion, and 
these gradually grew and developed until they were separated 
out of a larger whole and constructed into a separate science. 

The question is often asked, "Why did not economic science, 
as a separate science, arise earlier in the world's history ? 
An examination of this history gives the answei*. We may 
take the Greeks. Why did the Greeks not have a complete 
political economy ? Another question will help us to answer 
why. What have always been the two most fruitful sources of 
economic inquiry ? They have been financial operations of 
governments and questions concerning labor. Now, great 
financial operations of governments are modern. The rev- 
enues of Athens at the beginning of the Peloponnesian War, 
in the fifth century before the Christian era, amounted to 
something like a million of dollars; a mere bagatelle in a 
modern national budget, which runs into the hundreds of 
millions. It has already been mentioned that national debts 
are scarcely two hundred years old. Taxes like those we know 



IXTROD UCTOR Y. 313 

are also now. For over a century Komc \v;is iiiit;ix('<l, .iikI 
C'ii'ero in one of liis works speaks of taxation almost as we 
niU^ljt of a reign of anarcby. J>ut w hat abou t labor ? Labor 
Wiifi .despised. Aristotje thoughtthat all industrial classes, 
einploviM-s antl employes alike, were unworthy of citizen- 
ship. Vet this is not all; political ecouijiny deals with in- 
dustrial relations, and these relations were less numerous and 
less important in ancient times. This subject has already 
been treated. 

When we pass on from Rt)me to the Middle Ages, after 
the breakdown of the Roman Empire, we find an unsettled 
condiiion of society, which would naturally retard the devel- 
opment of political economy. As other causes for the fail- 
ure of the Middle Ages to develop li political economy may 
be mentioned the too exclusive devotion of scholars to relig- 
ion and metaphysics, the absorption with ancient authorities, 
and the dread of originality. The great men of the Middle 
Ages had their own work, and this was the reconstruction of 
a civilization on the ruins of the old world. Church and 
empire were the agencies for this reconstruction, and these 
absorbed the talent of the times. 

At the clo se of the fifteenth century a new world in the 
Occident was discovered, and this gave a new impulse to 
thought, and within two centuries forced new and strange eco- 
nomic phenomena upon the attention of Europeans. This new 
world has continued to force new phenomena of an economic 
nature upon the old world even up to the present year, and 
has ever been a fruitful cause of economic study. The_new 
course of tra<Ie to the East, which followed upon the discov- 
ery of the route to India around the Cape of Good Hope by 
Vasco da Gama in 1498, must be mentioned as still another 
cause of economic inquiry. 

The great Protestant Reformation in the si.xteenth century 
effected radical changes in economic, political, and intellect- 
ual life, and gave rise to speculations which finally termi- 
nated in what is technically known in the history of political 
economy as the mercantile system. 



CHAPTER ir. 

ECONOMIC IDEAS IN THE ANCIENT WORLD AND THE MIDDLE 

AGES. 

It is not proposed to present a history of political economy, 
which would require a far larger work than the present, but 
simply to indicate in the briefest possible way the main cur- 
rents of economic thought. 

The Orient. — Little attention is usually given by econo- 
mists to the East, j^artly because it is probably insufficiently 
appreciated, partly because its general life has been so im- 
perfectly investigated and materials for knowledge are still so 
imperfect and difficult of access; finally, partly because our 
young science has found more fruitful fields still unworked. 
The ancient Eastern nations were theocracies, and under the 
guidance of priests who prescribed duties and often methods 
of economic action, frequently going into details. The 
ethics of economics were somewhat cultivated, and such as 
they were they were reduced to practice. They entered 
into e very-day life as our higher ethical principles imfort- 
unately do not. We encounter warnings against the sins 
of wrath, pride, and arrogance, and exhortations to a kindly 
treatment of inferiors. Thrift and temperance were en- 
couraged, just weights and measures prescribed. A simple 
division of labor between economic classes took place and 
these classes sometimes became estates. Indeed, Sir Henry 
Maine says that in India to-day, with the exception of 
the two highest castes, " caste is merely a name for a 
trade or occupation," * Conservatism was held to be a 
sacred duty and radical changes were considered rebellions 
against the divine law. Progress was thus rendered im- 
* Village Communities, American edition, p. 57. 



ECOXOMIV Il)I-:.\s IX TJIJ'J AXCJh'XT WOULD. 315 

possihlo. National I'xclusivc'iiess was a uuivcisal ])()licy. 
Trades, coinnu'ivi', and iiiaiuifacturcs wtif licM in sliL^ht 
cstet'in, but agrii'uiliiri' mot with more lav«)r. 'J'he ctliieo- 
ccononiic ideas of tlie Orient desene especial attention. 'I'lie 
economic iileas of one Oriental peoj)le, the Jews, have been 
tolerably well j)reserved in the Bible. These should be 
stiidietl more carefully than they have been by economists. 
IJiblical views about usury, debt, and land tenure are espe- 
cially important. 

The Greeks. — The three writers anions; the Greeks most 
interestiiiLj to the economist are Plato , Aristotle, and Xcuo- 
phmi, but by far the most important is Aristotle. 

Plato describes a Utopia in his Republic. His aim was to 
picture an ideal society in mIucIi the ills of society were to 
be corrected by a communistic State, and he included a 
communism even of wives and children, going further than 
modern communists. The communism of Plato admitted) 
strange as it may seem, slavery, on which his social super- 
structure indeed rested as a base. T^ie Laws of Plato is a 
more practical "vvx)rk. It aims to^ present not the best possi- 
ble state, but only the second best, and deals to a greater ex- 
tent with existing institutions. 

Ari stotl e's principal work for us is iho PoUfics, and it is 
indeed one of ^he most remarkable books in tlie world's his- 
tory. Its influence is strongly felt to-day, for it was care- 
fully studied by theologians of the Middle Ages, and through 
them entered into the thought and life of their time; and the 
thought and life of their time can be seen by the careful 
student to have entered in a thousand ways into the institu- 
tions of the nineteenth century. Gladstone, the English 
statesman, sa,ys the PoLUics of Aiisiotle is_one of the three 
books from which he has learned most. 

Aristotle combated the communism of Plato, and ad- 
vaneed arguments in favor of private property which we 
can hear any day uttered as new and original truth. But 
Aristotle was no anarchist. He said man by nature is a 
political Vicing, more literally a State being, and he accorded 



316 AN INTRODUCTION TO POLITICAL ECONOMY. 

to the State large functions. Aristotle subordinated strictly 
the industrial life to the higher life-spheres of societj'-, and 
in some respects the most advanced political economy is a 
return to Aristotle. 

Aristotle, like the ancients generally, taught_the^siiif.ulxies&- 
of interest. Money, he said, was barren. One piece of coin 
cannot beget another piece of coin; hence interest should 
not be allowed. This is only a part of his argument, but 
the space is too brief for further presentation. It should, 
however, be remembered that many of the arguments m 
favor of interest now heard would not hold for Aristotle's 
age. 

Among the works of Xenophon there may be mentioned 
as of special importance li ter Oy the GyropcecUa, and the 
Revenues of Athens. The first two are romances, describ- 
ing an ideal State, and the third deals with the finances of 
Athens. 

The Romans. — There is less to be said about the Romans 
than about the Greeks in a history of the evolution of eco- 
nomics. Their economic life was remarkable and instructive, 
exhibiting the disastrous consequences of slave labor and of 
an excessive concentration of wealth, particularly of landed 
property. Pliny said the great estates, the latifundia, caused i 
(the doAvnfall of Rome, The moral degeneracy of the empire i 
' is fruitful of economic consequences which deserve serious 
attention, and among these have already been mentioned 
wanton luxury and wide-spread poverty. But while the eco- 
nomic institutions of the Romans and the manifestations of 
their character in their economic life will repay investigation 
they were not remarkable for independent thoughts. Their 
economic ideas, like their philosophical doctrines, were bor- 
rowed from the Greeks, and generally in the history of 
thought they occupy an inferior position, 

Cicei'o, Seneca, and the elder Pliny are mentioned among 
the philosophers whose economic ideas are noteworthy, and 
Cato, VarrOj and Columella among the writers on agri- 
culture. 



KCOS'OMIC IDHAS /X TUH AXCIKXT \V(>l:l.[). ,7/7 

The jurists are, however, tlie must iiiiportunL of ull. W'lwit- 
cver m;iy he its imperfections, the Roman law, the corjms 
juris civilis, is the most remurkalde U'<xal system the world 
has ever seen, and lor traiiiiiit^ in careful and accurate state- 
ment is unsurpassed. Prohahly as a training for economic 
studies Roman law is among the most valuable l)ranches of 
learning. It gives us also invaluable information about the 
economic institutions and measures of Rome. 

Christianity. — The economic ideas of Christianity come 
next in point of time, but not next in the order of evolution. 
Christianity seems to be interposed here out of the logical 
oi'der, and some will regard this as a proof of its divine ori- 
gin. Suddenly we pass from weak and imperfect ideas, many 
of which are now quite antiquated, to a sublime ideal of eco- 
nomic life which we are only beginning to try to realize. 
The most modern movement in economics, as it is in part a 
return to Aristotle, may also be regarded as in part a return 
to the teaching of Christ, although yet far from the ideal 
which he placed before men. Christianity asserts the honor- 
ableness of toil, which is the exact opposite of what the 
Greeks and other ancients had taught. Christ and his apos- 
tles were working-men whom Aristotle would have deemed 
unworthy of citizenship. This had, both directly and indi- 
rectly, tremendous economic consequences. It has, among 
other things, been a constant force pushing in the direction 
of the emancipation of labor. The doctrine of brotherhood 
is a powerful economic factor. Let us bear each other's 
burdens. Let each one bear his own burden also. Let 
us be sure not to be a burden to others, and at the same 
time help others. This tends to the conservation of human 
energy and to the development of man's physical and other 
powers. 

The duty and the right of general enlightenment spring 
from Christianity. If humanity is so precious as Christianity 
teaches, all the faculties of each person should be developed 
to their utmost. Education, with its undoubted economic 
value, follows necessarily. 



§18 AN' INTRODUCTION TO POLITICAL ECONOMY. 

Benevolence, which Professor Sidgwick in his History 
of Ethics says is the distinctive teaching which Chris- 
tianity added to ethics, tends to the maintenance and 
increase of efficiency of men and the general productive 
power of men, 

/ The prohibition of luxury implied in the command to love 
I our neighbor as ourselves tends to the preservation of nations. 
I Self-sacrifice and self-control in this as in other directions 
; have high economic value. 

The Middle Ages. — Little can be added in our bird's-eye 
view to what has already been said about economic specula- 
tion in this period. The religious and moral aspects of eco- 
nomic questions wei'e considered by the theologians, who ab- 
sorbed the learning of the time, and the canonical law, corpus 
juris canotiici, contains what we may regard as the Church 
doctrine of practical law in the Middle Ages. The most re- 
markable writer, from an economic stand-point, as well as 
from other stand-points, who falls within this period was 
undoubtedly Thomas Aquinas, of the thirteenth century, the 
study of whose writings has recently been urged by the 
pope. He treated chiefly two economic topics: just price, 
justum pretium, and interest. The conception of just price 
still lingers, and the doctrine that all interest is sinful 
was in the sixteenth century modified and became the doc- 
trine that excessive interest is sinful, and usury in later times 
has meant simply excessive interest, and not any inter- 
est at all, as formerly. The teachings of Aquinas in modified 
form still exist as a force in our thoughts and in our laws. 
Aquinas wrote commentaries on Aristotle, and what he taught 
was Aristotelianism modified by Christianity. 

Professor Roscher says that the schoolmen of the Middle 
Ages asked in their economic inquiries. What is ethically 
allowable? that in the development of political economy 
we pass on to the fiscal jurists, who asked, What is legally 
allowable ? that the economic writers and teachers of the 
early modern period, that which we are about to consider, 
the mercantilists and cameralists, as the teachers of economic 



ECONOMIC IDhJAS IX THE AXVIEXT WOUI.I). .ll!) 

iiloas to (u'l'iiiaii ollicf-hoMcrs were callrd, ;iskc(i, W'li.it 
is useful? and that, linally, in most niotlcru times I'coiioniists 
have arrived at the insii^ht that real and ]iermanent utility 
can he attainetl only through l)(ith the h^ally allowable and 
the morally allowable. In otiier words, law, morality, and 
utility must harmonize.* 

• Roscher's Finamivissenschaft, sect. 12 of second edition. 
14* 



CHAPTEE III. 

ECONOMIC IDEAS IN MODERN TIMES. 

We now pass on to economic systems, which have been 
treated in the present work more or less fully. We can only 
gather together the threads and try to form a brief contin- 
uous narrative. 

The Mercantilists.^The_jnercantile_^y^em, also callej_ 
Colbertism, restrictive system, and commercial system, ob- 
tained from the early part of the sixteenth century until late 
in the eighteenth century, and its influence is still felt. Mer- 
cantilism is not, strictly speaking, the product of a school of 
political economists, but rather the name given to that eco- 
nomic policy of statesmen and to those detached economic 
views of writers which prevailed during this period. Most 
prominent among the statesmen who were mercantilists may 
be named Colbert, of France, Frederick the Great, of Prussia, 
and Cromwell, of England. Serra, an Italian, early in the 
seve'nteenth century presented a moderate and systematic 
statement of their views in a work entitled, A Brief Treatise 
on Causes lohich make Gold and Silver Abound where there 
are no Mines. Thomas Mun, in England, a generation later, 
wrote a valuable treatise from the stand-point of the mercan- 
tilists, called, England's Treasure by Foreign Irade, or the 
Balance of our Trade the Rule of our Treasure, while Sir 
James Steuart's Inquiries into the Principles of Political 
Economy, published in 1767, may be regarded as closing the 
development of the theory of mercantilism. The one idea 
common to all mercantilists was this : a nation ought to 
strive to export a quantity of goods of greater value thauJi, 
imports, in order that the difference may be imported in gold 
and silver and the home supply of the precious metals in- 



ECONOMIC IDh'.lS /.V MODKUX TIMES. ;J21 

creasiMl. Kvi'i-y tiling dso was sultoidiiialcd to this |>oIicy. 
A"f;ivoral)k> haliiiu-c of trade was the aim, and wc call their 
poliev " the hahinee of traih- tht'ory." Tariffs were lai<l with 
tliis in view and proteel ionisni was encouraged; yet it was 
soinethinLT different from motU'rn protectionism. It was tlie 
avowed aim of the mercantilists to make both at^ricidt- 
ural |iroiIiicts and labor cheap, in order that manufactured 
articles miijlit he cheaj) and a hirge sale of them abroad 
ell'ectetl. The ex[iortation of raw material was often entirely 
}>rohibiteil. 

The Physiocrats. — The pjrvsiocrats were tlie first to pre- 
sent a rounded-out .system of t^eonomic doctrine, and may thus 
be called the founders of our science. QuesnaVj a physician, 
Gcmrnay, a merchant, and Turgot, the statesman, are their 
tjiree ])rineipal authors. Tlie })hysiocrats taught the doc- 
trine of natural laws already expounded, and as a consequence 
loudly proclaimed the maxim laissez falre. They taught 
furtherniQiie-that agriculture was the only pursuit which 
added to the wealth of the country, and that additions to 
wealth must come from pure economic rent. They advo- 
cated in consequence the doctrine that all other taxes should 
be abolished and all taxes levied on rent. All taxes must, 
they thought, in the end come out of rent anyway, and it is 
better that the landlord should pay them at once instead of 
waiting until they have passed through five or six hands and 
various profits have added to their amount. The physiocrats 
were ardent champions of free trade. 

Adam Smith. — Adam Smith, of Scotland, published in 
1776 the niost influential economic treatise ever written. It 
was called Tlie Wealth of Nutloits. Adam Smith is usually, 
though perhaps withoufJusticB to the physiocrats, called the 
father of political economy. Ili^writings, critically exam- 
ined, are found to be very similar to those of the ])hysiocrats, 
but further developed and modified by his Scotch training 
and habit of mind. We find in Adam Smith free trade but 
less extremely stated ; laissez faire, but with more careful 
limitation; and the doctrine of natural laws and haiinony of 



822 AX INTR OD UGTION TO POLITICAL ECONOMY. 

the working of the selfish interests, yet stated more guardedly. 
Adam^Smith, however, regards all industrial pursuits which 
are concerned with material things as truly productive, and 
does not propose to limit all taxes to rent, although when 
one goes through with the list of taxes which he rejects it is 
found that not many things save rent are left to be taxed. 

Malthus. — Malthus published at the close of the last cent- 
ury his celebrated work, The Theory of Population, in which 
he advocated the Malthusian theory already explained. This 
was his main contribution to the evolution of economic 
science. 

Ricardo. — Ricardo's principal work is called Principles 
of Political Economy and Taxation. It was piiblis]ije.d ilL 
1817, and in it Ricardo elaborates, although he did not orig:. 
inate, the usually received doctrine of rent, which is the one 
explained in this book, and called the Ricardian doctrine of 
rent. Rent, he said, is due to the niggardliness and not to the_ 
Bounty of nature, and othm-wise his doctrines had a pessi- 
mistic tinge, as when he teaches the natural diversity of 
interest between wage-receivers and profit-makers, and the 
antagonism between the interests of land-owners and all 
other classes of society. Personally he was a kind man, 
and undoubtedly sincerely devoted to the advancement of 
humanity, although he is considered so hard-hearted as an 
economist. Ricardo is remarkable for his extreme developr 
ment of the abstract deductive method, and it is note- 
worthy that this development is not in the writings of a 
professional scholar but in the work of one of the most 
successful bankers and brokers of his day. Socialists claim 
that developing still further, or to their logical outcome, 
the teachings of Ricardo they arrive at socialism, and 
Ricardo ranks high among scientific socialists. Ricardo 
illustrates, in the author's opinion, the dangers of the de- 
ductive method. 

John Stuart Mill.— John Stuart Mill, who lived from 
1806 to 1873, closed one period in the development of eco- 
nomic science and began another in England. He started as 



ECONOMIC IDEAS LV MODKIiX TIMES. 323 

a thoroii^li-gt)inLj follow i-r of Ricanlo, but^adclecl so imich to 
tlu' l{it';ir(U;in doi-triiu's that iiis tri'utise bcHMme largely new. 
Tlu- old and lU'W do not liarnionizr, iiowcvcr, aiul tin- result is 
a work, one of the most valual)le of modern times, and yet full 
of ineonsistt-neies. lie did the best that eoidd he done with 
the oUl ilediietive basis on whieh he reared his superstruetuie, 
and he siiowt'd the needs of new methods. 

Roscher, KnieSj and Hildebrand. — These tliree young 
Germans came forward in ISoO with a new method, which 
they calle<l tlie historical, and whicli has elsewhere been dis- 
cussed. These writers and their successors went back of the 

old i>iriiii-r-, self-interest, j)rivaie property, demand and 

supply, and analyzed and explained them. They traced his- 
torical development, and Kiues_challenged absolutisrn of 
tli eory and substituted the doctrine of relativism. Absolut- 
ism of theory took two forms — perpetualism, or the teaching 
that a certain policy is good for all times; and cosmopolitan- 
ism, the teaching that a policy is good for all countries. 
Knies held that policies are only relatively good and bad; 
t hat po TIc-les hiust vary with time and place. The Germans 
thus took a new attitude with respect to free trade and pro- 
tection, holding that neither was absolutely good nor abso- 
lutely bad, but that the coiTect policy of a country cannot be 
told without an acquaintance with the particular circum- 
stances of the country. 

While the^doctrine of the Germans is broad and liberal it 
i s at t he same time conservative, for it teaches that improved 
conditions must be a growth, and must take their root in the 
l)ast. Socialism comes rather from the abstract English 
political economy than from the German political economy. 
As English socialists themselves claim, socialism went from 
England to Germany and has now returned again to England. 

We have now the principal elements in the evolution of 
economic science: the early French, the later English, and 
the still later German contribution. Other contributions 
have been less important. 

The present outlook for political economy is most hopeful. 



324 AN INTRODUCTION TO POLITICAL ECONOMY. 

The activity is greatest in Germany, wliere Roscher, Kuies, 
and Hildebrand have had many worthy successors, of :ffi^hom 
Professor Wagner, of Berlin, is the greatest. We may also 
mention these cultivated scholai's: Pi'ofessors Cohn, Conrad, 
Sax, Lexis, Rilmelin, Schonberg, IvTasse, Scliiiffle, Baron von 
Reitzenstein, Professor von Scheel, and Dr, Eduard Engel, 
long at the head of the Prussian Statistical Bureau. 

The historical view has sometimes tended to fatalism. The 
relative justification of what exists has at times become 
almost an absolute justification, and one might think that 
whatever has been was at the time the best, and that mis- 
takes have not been made. There has been a reaction against 
such extremes. There are different tendencies among Ger- 
man economists, and, as already stated, the term historical 
school applies to them on\j when taken in a very broad sense. 

German influence has extended every-where and has stim- 
ulated the Italians, who are now active in economics and do- 
ing some good wook. Among recent Italian economists may 
be mentioned Professors Cusumano, Lampertico, Luzzaii, and 
Cossa. 

England is doing jpirie good work. Professor T. E. Cliffe 
Leslie, author of a volume of Assays in Political and 3foral 
Philosophy, introduced German ideas ten or fifteen years ago, 
and they have proved to be good yeast in old England, full as 
ever of vigor and life. Arnold Toynbee continued this influence 
at Oxford, and his work, Indastrial Revolution, is a valuable 
contribution to economic thought. Toynbee died a few 
years since, scarcely thirty years of age. But it is plain that 
many young Englishmen have been touched by him, and 
they may carry forward his scientific work. Other English 
economists might be named who take a middle position be- 
tween the historical and deductive schools, like Professors 
Sidgwick and Marshall, of Cambridge, and the late Professor, 
Jevons, of University College, London. 

France has done almost nothing for the evolution of 
economic science since the outbreak of the French RevO'-- 
lution of 1789. Political_eoonomy has in France .degfiiir 



EVOXOMIC IDEAS LV MODERX TJ.UhS. 325 

erated into a nu-ri' tool of the |>o\\h'iIii1 classes. Notli- 
inLj is so calculated to till one with di'spair for France 
as French political economy. Raljid socialism confronts 
cold-blooded, scltish political economy, and where is a com- 
mon standim^-LTrounil ? "^riicre is so little economic liber- 
alism in no other modern nation. Happily, there are some 
indications of progress just at present, and curiously enough, 
in view of VoUaire's dictum, " Lawyers are conservators of 
ancient abuses," this refreshing breath comes from the law 
scfiool professors. Professor Charles Gide, of the Faculty 
of Law of Montpelier, and prominent in good works, is the 
head of the movement. This new movement is one of the 
hopeful signs for France. It is connected through Professor 
Gide witli organized efforts of the Protestant clergy to im- 
prove the condition of the wage-earners and to bring about 
a reconciliation of social classes. Professor Gide is the au- 
thor of an economic treatise which is now in its second 
edition. 

Belgium is iji a liealthier condition than France, and two 
livingTleTgian economists have made important contributions 
to econoniic science. They are Professor E. de Laveleye and 
Cliarles Perin. Professor Perin is the author of many works, 
and treats present political economy from tlie stand-point of 
the Roman Catholic. 

Next to Germany, the greatest activity in economics is 
now found in the United States, and there is every reason to 
expect valuable contributions to economic knowledge from 
Americans in the near future. Some such contributions have 
already been made. Harvard University, Columbia College, 
Cornell L^niversity, the University of Michigan, Jojius Hop- 
kins University, and the University of Pennsylvania all have 
schools of political science or are specially active in political 
economy. Chau_taiiqiia .Xlltiyei'sity is also promoting an in- 
t< II -t in economics in its way. It provides a great public 
for an elementary treatise like the present, and it carries on 
work in political and social sciences in its sunmier school 
and in its correspondence school, both a part of the Chau- 



326 AN INTRODUCTION TO POLITICAL ECONOMY. 

tauqua College of Liberal Arts. Most of the students in 
the College of Liberal Arts have been college graduates, but 
it is hoped hereafter to draw nearer together the more pop- 
ular and the more advanced parts of the Chautauqua work. 
Chautauqua University Extension will aid in this, and in 
this way as well as otherwise help to awaken an interest in 
economics. 

Harvard University publishes a Quarterly Journal of Eco- 
nomics, and Columbia College a Political Science Quarterly, 
both scientific periodicals of a high order, while the American 
Economic Association, embracing nearly all the economists 
and many of the public men in the United States, issues bi- 
monthly monographs which are now in the fourth volume. 
Americans have every reason to take a cheerful view of the 
future of political economy in this country. 

When we look back upon the evolution of economic sci- 
ence, we find that the most diverse elements have contributed 
to the growth of political economy. Philosophy in France, 
Germany, and England has contributed elements; practical 
statesmanship in every country has added important elements; 
shrewd business men of large affairs have been among the 
prominent economists, and in addition our science claims 
among its promoters some of the ablest scholars of the 
past hundred years. Political economy is doubtless still a 
young science, and as such is incomplete; but surely those 
who sneer at it as a " mere theory " do but reveal their 
own ignorance. 



Ingram's History of Political Economy is the best outline 
in the English language of the history of our science. 



PART YIII. 

A Fi:W SUGGESTIONS FOR STUDY AND 
COURSES OF READING. 



A FEW SUGGESTIONS FOR STUDY AND COURSES OF 
RExVDING. 

Suggestions. — The suggestions for study must be very 
geiKTul, as they must apply to so many readers in so many 
different situations. 

It may be saitl to all that they should form habits of care- 
ful observation, and supplement what they have gathered from 
this book by inquiry, reading, and reflection. Those who can 
ought gradually to get together a little working library of 
economic works, and the books herein mentioned will consti- 
tute a very good economic library. Few will be able to buy 
all, but many can be picked up, one at a time, in a few years. 
Circles and schools can by co-opei'ative effort secure a larger 
library than can ordinarily be done by the isolated reader. 
Of course, when one's means are ample the problem is a very 
simple one. 

Circles and schools should call in the assistance of business 
and professional men and practical politicians from time to 
time. "NMien banking is discussed it will not be difficult to 
And a banker who will be able to explain more fully bank 
notes, checks, drafts, and bills of exchange, perhaps exhibit- 
ing blanks or canceled paper. 

Similarly, when taxation is being studied, local tax assess- 
ors and tax gatherers should be invited to describe the actual 
workings of the system in the administration of which they 
are practically engaged. Let readers examine the different 
kinds of money in circulation, and not rest content until they 
understand their difference. Water-works, gas-works, public 
roads are to be studied, and private com})ared with public 
management ; and various kinds of farming, farming on a 
large scale and on a small scale, are worthy of observation, 
and j)ractical farmers can tell what they know about the 
merits of different systems. 



S30 AN INTRODUCTION TO POLITICAL ECONOMY. 

Courses of Reading. — l. The author begs to mention his 
own works first, not because they are superior to other works, 
or even equal to them, but because for those who take an 
extended course of study there is an undoubted advan- 
tage in first mastering one author and then passing on- to 
others. Besides, thoughts which could not be fully elabo- 
rated in this work will be found further explained in his other 
works. 

At the same time the author will frankly confess that he 
wants no one to accept his mere ipse dixit, and that he 
would consider this work a failure if it did not kindle a 
desire to read the works of other authors. The author has 
written Problems of To-day, French and German Socialism, 
Labor Movement in America, Taxation in American States 
and Cities, and if any one should care to read all he would 
recommend their perusal in the order named. If only one 
work is read let it be Problems of To-day / if two, that and 
Taxation in American States and Cities. If another book is 
desired as a text-book in school or college as supplementary 
to this, let it be Taxation hi American States and Cities, 
if time is sufiicient for so large a work, otherwise Problems 
of To-day. Those who are chiefly interested in labor prob- 
lems will instead take Labor Movement in America, or, if 
time is short, French and German Socialism. 

2. If it is desired to pass from this book immediately to 
those of other authors, the following course is recommended: 
Kirkup's Inquiry into Socialism; E. J. James's Relation of 
the Modern Municipality to the Gas Supply, H. C. Adams's 
Relation of the State to Industrial Action, H. C. Adams's 
Public Debts. 

3. Having taken 1 or 2, comparative studies in the follow- 
ing works are recommended : John Stuart Mill's Principles of 
Political Economy; F. A. Walker's Political Economy (large 
edition) ; J. B. Clark's Philosophy of Wealth. Make Mill 
the basis, read his work and compare his theories with those of 
Clai'k and Walker. This might be extended by a comparison 
of views in Newcomb's Political Economy. 



STUDY AXD COl/RSES OF HI': A DING. 331 

4." Tariff Course.— H. '1\ Kly's ProUenm of To-datj; 
R. E. Tlioiupsoii's Protection to Home Imlustry; F. \V. 
Taussiij's 7\irijf llistori/ of the Irnited States; Frederick 
List'n Xationid Sijstem of Political JlJconomy; S. N. Patten's 
Premises of Political Economy; Henry George's Protection 
and Free 7W(de. 

5. Money. — F. A. "Walker's Money ; or, Money, Trade, 
and Industry; Stanley Jevons's Money and the Mechanism 
of Ax'-hanye ; Laiiglilin's History of ]>imetallism in the 
United States ; S. Dana Ilorton's The Silver Pound. 

G. Banking. — Knox's Report as Comptroller of the Treas- 
ury in Uniti'il States Finance Reports for 1875-70; J. S. (4il- 
bart's History, P-inciples, and Practice of Banhiny ; Walter 
Bagehot's Lombard Street. For law, J. T. Morse's Pan/cs 
and Panking. 

7. Finance.— IT. C. Adams's Puhlic Debts; R. T. Ely's 
2\(.cation in A))ieric((n States and Cities; Cossa's Taxation, 
its Princi2^les and Methods; A. J. Wilson's The National 
Budget, the National Debt, Taxes anel Pates ; T. II. Farrer's 
The State in its Pelation to Trade ; Woodrow Wilson's Con- 
gressioned Government. 

8. Socialism. — Edward Bellamy's Looking Backward; 
R. T. Ely's French and German Socialism ; Kirkup's In- 
quiry into Socialism; T. Edwin Browne's Stuelies in Mocbrn 
Socialism and the Detbor Problem ; Rae's Contemporary So- 
cialism ; Eniil de Laveleye's Socicdism of To-deiy ; Gron- 
lund's Co-operative Conrmomoealth ; Marx's Capitfd, often 
called the Bible of socialism. For American Socialism see 
Ely's Labor Movement in America. 

9. Anarchism. — Proudhon's What is Property ? and other 
works tran.slaled by Benj;imin R. Tucker; Prince Krapot- 
kine's articles in the Nineteenth Century, February and Au- 
gust, 1887, April and October, 1888 ; Walker's Political 
Economy; article " Socialism " in Encyclopaedia Britannica; 
article " Shall We Muzzle the Anarchists," by II. C. Adams, 
in Lor urn, vol. i, p. 445, Se])tember, 1S8G. 

lu. Rent. — Henry Geuige's L'rogress and Poverty and 



S32 AN INTRODUCTION TO POLITICAL ECONOMY. 

Social Problems ; Walker's Zand and its Bent ; J. B. Clark's 
Capital and its Earnings. 

Other works needed for a fairly good economic library: 
Publications of the American Economic Association, com- 
plete; Political Science Quarterly, complete ; Quarterly 
Journal of Economics, complete; Bradstreet^s current num- 
bers, published in New York; Banker's Magazine, published 
in New York; Walker's Tlie Wages Question; Bolles's i<7- 
nancial History of the United States ; Lalor's Cyclopcedia of 
Political Science ; Clark and Giddings's The Modern Distrib- 
utive Process; Washington Gladden's Ajyplied Christianity ; 
Life and Work of the Seventh Earl of Shaftesbury, by Hod- 
der, unabridged; Helen Campbell's Prisoners of Poverty ; 
Beport of the Lidastrial Benmneration Conference, London, 
1885; Arnold Toynbee's IndnMrial Bevolution ; Reports of 
the State Bureaus of Labor Statistics and of the National 
Department of Labor, 

G-erman "Works. — Desirable for those who read German: 
— Schonberg's Handbuch der Politischen Oekonomie 2te Aufl,; 
the economic treatises of Wagner, Roscher, Cohn, Knies. 
Magazines : JahrbUcher filr Nationalbkonomie und Statis- 
tik ; Jahrbuch fur Gesetzgebung, Verwaltung und Volks- 
loirtlischaft (Schmoller's). 

French Works. — Gide's Principes d^economie politique, 
2® ed.; Baudrillart, Jlistoire du luxe; Leroy-Beaulieu's 
Traite de la science des finances; Emil de Lavelej^e's 
economic writings ; Charles Perin's economic writings ; 
Sismondi's Nouveau principes d'' economie politique. Maga- 
zines : Bevue d'' economie politique; the Journal des Econo- 
mistes is the organ of the old ultra- conservative school of 
French economists. 



APPENDIX. 

I. QUESTIONS AND EXERCISES. 
II. BIBLIOGRAPHY. 



QUESTIONS AND EXERCISES. 



Defixe tho following; terms: Sociology :| economic life; political econ- 
omy; the ^tate; freedom of contract; nnnjiieT*^ecouomic gootls""'; wealth^ 
■^Jt'^ants^ luxuries; capilArnexclKin^; vdKie; Drici*/ demaud and supply^" 
cost orproduclipn ; money f bimc'tafiism ; crecmj' property ; interest; capi- 
taliz.ition ; rent; standard of comfort; margin or cultivation ; socialism; 
anarchism. 

What are the departments of social life, and what is the relation of the 
economic to the other departments? 

It has been estimated lliat tiio annual production of wealth in the United 
States is about $10,000,000,000. Examine all the elements which must 
enter into such an estimate. 

What are the physical characteristics of your own locality? How have 
they influenced its economic life ? In what ways do you think they will 
aflfect its future economic life ? In what ways have the character of the peo- 
ple in your community been shaped by their economic life ? 

What is meant by serfdom? What is the difference between slavery and 
serfdom ? 

Is there justification in the term " wage-slavery." Explain. 

Show the importance of studying tlie economic institutions of a people 
from the stand-point of their historical development. 

What are the different economic stages in the life of a people, viewed 
from the stand-point of production and of transfers of goods ? Describe and 
give illustrations of each. 

Describe the village community. 

Explain the essential difference between the economic system of the 
Middle Ages and that of the present time. , V*!' ^ t'^rCCi^ 

Describe four of the main features of modern economic life whicli give 3 •• fiCStO 
rise to the present economic problems. 

What two kinds of deterioration may there be in the economic condition 
of ilie masses ? 

What are tlie principal means proposed tor uniting labor and capital ?C^ 

What are the relations of modern economic life to freedom? lu what 
important respect has the nafire of restrictive laws been changed i What 
are the advantages and disad-'aniages ot treedom in mdustrv .' A ? 
15 '' ' 



336 AN INTRODUCTION' TO POLITICAL ECONOMY. 

What has been the development of laws with respect to the industry 
of agriculture? Have restrictions increased or decreased? been m;ide7*'/^ 
special or general ? Illustrate. "With respect to the liquor industry ? The 
shipping industry? 

What government activities can you name which were formerly, in this 
or other countries, ancient or modern, delegated to individuals or private 
companies, and what have been the reasons which led to the adoption of the 
present system ? 

State and criticise the contract theory of government. 
r^Q What are the principal reasons why government should own and manage 
' forests ? 

ff' Show how political economy is simpler than private economy. 
o^^'t■ Show the difference between private aud public interests. 
\o'' Why must we have an ethical ideal in our studies in political economy ? 
Describe the three classes of delinitions of political economy ; show their 
historical development, and give examples of each. 

Into what main parts rany political economy be divided? 
vi^b What are the different methods of economic researcli ? Describe each. 
Wiiiuh are most important? What is the origin and character of the his- 
j^igtoricul school? 
\vi-vAVhat is usually meant by the term " natural law ? " 

Examine the following: " The practical or unscientific economist is one 
who, finding the river to wind about in all directions, denies or ignores any 
special tendency in its waters to approach the sea, and reijards the idea of 
tliose waters being urged forward by anyone single force, like that of gravi- 
tation, as entirely illusory." — Newcomb. 
\\:l Wliat claim has political economy to the name of science ? 
ii-'-'To wliat other sciences is political economy closely related, and in what 
way? 

What place does economic science occupy with regard to tlie laws of the 
physical universe ? 
\Y'- Give illustrations of the influence of the religious life upon the economic 
life of a people. Show some economic causes and results in religious ref- 
ormations; for example, those ofLuiher, Wiclif and the Lollards, Moham- 
med, and others. 

What are the principal economic tf acliings of Moses ? of Isaiah ? of 
Jesus? Show the growth of economic civilization among tlie Jews as ex- 
emplified by their teachings. 

Does religion become more or le=s important with the growth of indus- 
trial civilization ? Show how this is. Give historic proofs. Proofs from 
your own observation. 

\':l\ Can you mention any subjects belonging to the field of political economy 
which are not also witiiin the proper domain of legislation ? 
I A? What are economic goods? What is wealth? 



QUESTIOKS AXD EXERCISES. 88T 

/yj^hat is the relation between production nnd conBumption as divisioDS of 
political economy ? 

/'.'<?What are tlio causes for apparent overproduction? 

_Q Kxaniino and criticise iho following: "Generally, and with one single 
exception, that of food, there may bo an excess of products; and univer- 
Siilly, or inclusive of food and of oil things else, there may be an excess of 
productive effort" — Chalmers. 
iSI-T-Wliat are the ihree motives of economic activity, and how do tliey sup- 
plement one another ? Among what peoples is self-interest the only eco- 
nomic moiive? 
1^-3 Wliat arc the effects of luxurious expenditures upon the rich? on the 

working class? 
151- When is expenditure in luxuries justifiable ? Wliat is the difference be- 
tween saving and hoarding ? 
•£^' Show fallacies in the statement that expenditures for liquors furnish a 

market for the farnicr's produce. 
>b«-*'\Vii;it are the different factors in production ?^ Give examples of indus- 
tries where the different factors are represented by different persons. 

Wliicii of the four factors in production is most benefited by the extension 
of machinery and division of labor? 

What is meant by land? What services does it render to production? 
What is the difference between rent and profits? Rent and interest? 

What are the checks on population among savages? Among civilized 
people ? 

How does capital arise? Wliat defense has tiie capitalist for receiving 
interest? Is credit capitjil? Is money capital? Distinguish between eco- 
nomic goods and capital. 

Are the following things capital — socinl or individual : City lots, farms, 
good eyesight, a dwelling house, an actor's diamonds, a theater, bread and 
butter, railroad slock, promissory notes, Fortress Monroe, the Wliite House, 
Lake Erie, custom house, church taxes, lottery ticket. United States green- 
backs, "good-will" of a business? 

Define fixed and circulating capital. To wliich class do the following be- 
long: Calico on the shelves of the merciiant, a pick-ax, cash, steamboat, 
horse, iron ore ? 

Describe the functions of the entrepreneur. Show his relations to the 
principle of division of labor. 
jIV What are the advantages of division of labor? Disadvantages? Why 
can not the division of labor be carried out so well in agriculture as in manu- 
factures? 
--^What means can you suggest to lessen the evils of an extreme division of 
labor ? 

Show tiio way in which increasing division of labor increases the impor- 
tance of natural monopolies in the economic life of a people. 



S38 AN INTRODUCTION TO POLITICAL ECONOMY. 

How does the increasing division of labor affect the growth of cities ? 
What is the function of cities with regard to the mutual dependence of man 
upon man? 

Show how increased division of labor has made female and child labor im- 
portant problems. 

Wliat is tht relation between utility and value ? 

" Iron is more useful, but less valuable, than gjld." Point out the fallacy 
and show its bearhig upon the theory of value. 
\*i\ Under what conditions does value depend upon cost of production, and 
how is this dependence brought about? 

ii^VDetermine as nearly as you can what proportion of the industrial field is 
subject to monopoly, and therefore outside the limits of competition. 

Explain the following : " High or low wtiges or profit are the causes of 
high or low prices ; high or low rent is the effect of it. It is because high 
or low wages or profit must be paid in order to bring a particular commodity 
to market that its price is high or low. But it is because its price is high 
or low, a great deal more, or very little more, or no more, than what is suf- 
ficient to pay these wages and profit, that it affords a high rent or low rent, 
or no rent at all." — Adam Smith. 

" General low wages do not cause low prices, nor high wages high prices." 
Explain. 

The State of NewTork prohibits its penitentiary convicts from working. 
Does this increase the opportunities or remuneration for labor throughout 
the State? 

Wiiat is meant by tlie expression "fair price?" 
^<l'A jfame and describe the three conceptions of money. 

What functions are per.formed by money? 

Does the value of money depend upon the cost of production or upon sup- 
ply and demand ? 

What were the ideas of the Mercantilists with regard to money ? 

Does the value of money vary inversely as its quantity? 
y What are the qualities of gold and silver which make them pre-eminently 
fit for money? Which quality is the most important? Wliat articles iiavo 
been used for money? When is it a disadvantage to a country to import 
gold ? 

State all the effects which follow in a country from an increase or decrease 
in the quantity of money. 

What effects would follow if the gold in the United States were doubled : 
on bondholders ? on importers ? on bankers ? on farmers ? on wage-earn- 
ers ? 

Is the statement, "Bad money drives out the good," true to the facts? If 
not, state it better. 

What ar-e tlie conditions to be observed in fixing the amount of money 
which a country should have in circulation? 



QCESnOXS AXD EXERCISES. Scl9 

What effects would follow if the untioiml greenbiicks wero withdiawu 
from circulation? 

Kxamliio iho following^ : " Tlie iiitliix of money into a progressive country 
is ono of llie noost powerful promotera anil iucreuscra of producliou. To 
money (as to labor) ' time is money.' Whoever possesses it must seek uu 
investment for it or lose his profits. When it is plenty all sorts of produclivo 
work are stimulated ; labor is the master of capital, and industrial enter- 
prise gains a more than proportionally larger return for its outlay, with 
every increase of the outlay. Labor becomes more productive as the instru- 
ment of association is more universally accessible. Its price rises while 
that of commodities falls." — Thompson. 
mU Give dilVerent detiuitions of credit. What are the elements of a credit 
transaction? Xamo and describe the different instrunieuts ot credit. I '-'; 7 

What are tlie advantages of credit ? Disadvantages ? ^^.'^ 

What is the economic value of an extension of credit? "^^ '' 

What are tiio different motives which liavo led nations to regulate inter- 
national commerce? *' 

During the years lSGO-73 tlie imports of the United States exceeded tho 
exports, and from 1873 to 1883 the exports exceeded tlie imports. What 
inferences are possible with regard to the two periods? ^^f 

" We want a larger foreign commerce iu order to afford u vent for our 
surplus produce." Criticise this statement. 

What are the reasons for the apparent credibility of the balance of trade 
theory? Why do bankers look with more distrust upon shipments of gold 
to Europe than upon larger shipments to distant parts of our own 
country ? 

Examine and criticise the following : " The ordinary means to increase our 
wealth and treasure [gold and silver] is by foreign trade; wherein we must 
observe this rule : to sell more to strangers yearly than we consume of theirs 
in value. For suppose that wiien this kingdom is plentifully served with 
the cloth, lead, tin, iron, fish, and other native commodities, we do yearly- ex- 
port the surplus to foreign coimtries in the value of twenty-two hundred 
thousand pounds, by which means we are enabled beyond tho seas to buy 
and bring in foreign wares for our tise and consumption to the value of 
twenty hundred thousand pounds. By this order duly kept in our iradinir 
we may rest assured that the kingdom shall be enriciied 3'early two hundred 
thousand pounds, which must bo brought to us in so much treasure [gold 
and silver], because that part of our stock which is not returned to us in 
wares must necessarily be brought home in treasure." — Tltomas Mun, 
1640. 

Examine and criticise the following quotation from Adam Smith, Wealth 
of Nations^ Book II, chap, v: "The capital which is employed in purchas- 
ing in one part of the country, in order to sell in another the produce of 
tho industry of that country, generally replaces, by every such operation, 



340 AN INTROD UGTION TO POLITICAL ECONOMY. 

two distinct capitals, that had both been employed in the agriculture or 
manufactures of that country, and thereby enables them to continue 
that employment. . . . When both are the produce of domestic industry, 
it necessarily replaces, by every such operation, two distinct capitals, 
which had both been employed in supporting productive labor, and thereby 
enables them to continue that support. . . . The capital employed in 
purchasing foreign goods for home consumption, when this purchase is 
made with the produce of domestic industry, replaces, too, by every such 
operation, two distinct capitals; but one of them only is employed in sup- 
porting domestic industry. . . . Though the returns, therefore, of the 
foreign trade of consumption should be as quick as those of the home 
trade, the capital employed in it will give but one half of the encourage- 
ment to the industry or productive labor of the country. . . . But the 
returns of the foreign trade of consumption are very seldom so quick as 
those of the home trade. The returns of the home trade generally come in 
before the end of the year, and sometimes three or four times in the year. 
The returns of the foreign trade of cousumption seldom come in before the 
end of the year, and sometimes not till after two or three years. A 
capital, therefore, employed in the home trade will sometimes make 
twelve operations, or be sent out and returned twelve times before a capi- 
tal employed in the foreign trade of consumption has made one. If the 
capitals are equal, therefore, the one will give four-and-twenty times more 
encouragement and support to the industry of the country than the 
other." 

State the advantages to a country of foreign commerce. 
Examine the following, which has been offered as an argument for pro- 
tection: "After 1860 the business of the country was encouraged and de- 
veloped by a protective tariff. At the end of twenty years the total 
property of the United States as returned by the census of 1880 amounted to 
the enormous aggregate of $44,000,000,000. Thirty thousand millions of 
dollars had been added during these twenty years to the permanent wealth 
of the nation." 

Define property. "What is the meaning of the definition, "jus utendi 
vel abutendi re." What limitation is there always to the right of property ? 
1)4 What two elements enter into property ? 

^^ Show the growth of the right of private property through the succes- 
sive economic stages. 

tI*' What elements enter into interest? What determines the rate of in- 
terest? "b^ i 

"The increase of stock [capital], which raises wages, tends to lower 
profit." — Adam Smith. Is this correct? 

1^ Explain the difference between capital and capitalization. 

« ^^ What influence upon the selling price of bonds and land has a fall in the 
rale of interest ? A rise in the rate of interest ? 



Q UESTWXS A .VD EXER CISES. 3i I 

On what doea tlio rate of iuterest depend ? Wliy ia interest higher in 
Chicago tiian New York? 

If prices are hi^^li will interest bo higli? If the money in the United 
States wore doiil)l(Hl would the rate of interest rise? 

"That interest does not depend upon the productiveness of lahor and 
capital is proved by the general fact that where labor and capital aro luoat 
productive interest is lowest. That it does not depend reversely' upon 
wages (or the cost of labor), lowering us wages rise and increasing as wages 
fall, is proved by tlie general fact that interest is high when and where 
wages are high, and low when and where wages are low." Is this true? 

Does a fall in the rate of interest mean that the total interest paid has 
decreased eitlier absolutely or relatively to the total amount produced? 

Does the tendency of profits to a minimum depend on a general fall in 
prices ? If so, why ? If not, why not ? 

Ricardo's law of industrial progre.ss: "In an advancing community rent 
must rise, profits fall, and wages remain about the same." K.tplain ihis. 

" Interest and wages depend on the margin of cultivation, talluig as it 
falls and rising as it rises." Explain this. 

What does Ricardo mean by saying that the niggardliness of nature is 
the CJiuse of rent? Is this statement perfectly accurate? 

Define rent. What is tiie difference between rent and interest? 

Would the land of a country pay rent if it were all of uniform feriiliiy? 

What has been the eflfect of railroad-building upon rents iu the United 
Slates? 

Does increase in rent cause increase in the price of food? 

"No reduction would take place in price of corn although landlords 
forego the whole of their rent." 

"Rent does not enter at all into the cost of production." Explain. 

"High wages or profits do not make general high prices. They affect 
prices only inasmuch as different articles have, as elements of iheir cost, 
wages and profits in different proportions." Explain. 

Wages of bakers in New York average seven dollars per week ; in 
Chicago, twelve dollars a week ; of carpentcirs in Now York, fourteen 
dollars a week; in Chicago, sixteen dollars a week. Explain any causes of 
these differences with whicii you may be familiar. 

Distinguish between rate of wages and price of labor. 
■j,^'' Define the "standard of life." Of what importance is it as an economic 
principle? In what ways does a high or low price of food affect the 
general rate of wages? 

To what kinds of work is piece-work adapted? What are the advantages 
and disadvantages of piece-work? 

Wages of women are not commonly equal to those of men for the same 
work performed. Why is this so? Is it " fair?" 

Why should the economist discuss public education? 



342 A:sr INTRO I) U OTION TO POLITICAL ECONOMY. 

Examine the probable effects upon the produetioa and distribution of 
■wealth of universal education. 

"Can every cliildby education become a great man or woman?" 

What can we hope, f i om our stand-point, for the ordinary man or 
woman ? 
%'i>i Wliat are the differences in organization between trades-unions and 
Knights of Labor, and how liave they influenced each other? 

What are the different kinds of co-operatioa? What are the advantages 
of productive co-operation ? 
^[ What are the four characteristic features of socialism ? How does 

socialism difier from anarchism ? 
"2.St What is meant by profit-sharing ? Capital-sharing ? Co-operation ? 
i'=^<^ocialism? 
!.£ ' What are the characteristics of natural monophes ? 

It is sometimes said that State management of natural monopolies is 
socialistic. Examine and criticise this statement. 

Examine and criiicise the following: "There is no more reason why the 
government should operate the telegraph than run the flour mills — less, in 
fact, for every- body uses flour, while it is doubtful if even three per cent, of 
the people use the telegraph." 

"What conditions justify the State in engaging in mdustrial enterprises? 

What four advantages are claimed from public ownership and manage- 
ment of natural monopolies ? 

In what ways will the following different kinds of expenditure of income 
affect the wealth of the United States, and tiie working classes: Purcliase 
of United Siates bonds; employment of American servants; traveling 
abroad ; purchase of American pictures ; production of manufactured goods ? 

Criticise the following statement: "Blessed is the country where the 
rich are extravagant and the poor are economical." 

Examine the following: There is a "beautiful compensation, by which 
the excessive love of p"esent enjoyment on the part of spendthrifts, when 
carried to the length of abridging their capital, does, by its effect on 
suppl)' and price, call forth a counter-active force in the opposite direction 
— by inviting others, in whom tlie love of gain predominates, the more to 
extend their operation?, whether in trade or husbandry." — Chalmeis. 

How does the consumption of luxuries retard the industrial progress of 
a community? 
i-tjWhat is pubhc finance? 
'^(Ot.How can methods of taxation be improved ? 
\^q\ ,What is the justification of taxation ? 

Show how society takes part in production in your community. 

Examine carefully and criticise the following: "Daily purchases of 
United States Government bonds were commenced on the 23d of April, 
1888. By this plan bonds of the government not yet due have been pur- 



QUESTIONS AND KVERCfSES. 343 

chaso'i . . . nnioiinling to $94,700,400, tlio prominm paid thoroon 
amouiiling to $17,r)08,G13 08. Tho proniitini addod to the principal of thcao 
bonds roproscnls an invcslmont yiolilin^ about two por cent, inlorost for tho 
time they still had to run; and tho saving to the government represented 
by tho dilToronco between tho amount of interest at two por cent, upon tlio 
sum paid for principal and premium, and what it would have paid for in- 
terest nt the rate spociBcd in the bonds if they had run to their maturity, 
is about $27,1G5,000. At first sight this would seem to be a profitable and 
sensible transaction on the part of the governmeLt. But. .. the surplus thus 
expended for the purchase of bonds was monej' drawn from the people in 
excess of any actual need of the government, and was so expended rather 
than allow it to lie idle in the treasury. If this surplus under the opera- 
tions of just and equitable laws had been left in tho hands of tho people it 
would have been wortli in their business at least six per cent, per annum. 
Deducting from the amount of interest upon the principal and premium of 
these bonds for the time they had to run at tho rate of six per cent, the 
saving of two per cent, made for the people by the purchase of such 
bonds, the loss will appear to be $55,760,000." 
15* 



BIBLIOGRAPHY.* 



Adams, H. C. — Taxation in the United States, 1789-1816, Jolms Hnpkina 
University Publications, Baltimore, 1884:; Relation of tiie State to In- 
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2d. ed., Ann Arbor, 1888. 

Bagehot, Walter. — Tiie English Constitution, New York, 1876 ; Lombard 
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of English Political Economy, New York, 1885. 

Baudrillart, Henri. — Histoire du luxe, 4 vols., Paris, 1880; Piiilosophie 
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ib., 1885. 

Bellamy, Edward. — Looking Backward, Boston, 1888. 

Bluntschli, J. C. — Staatsworterbucli, Zurich, 1869; Geschichte der neueren 
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Brown, T. Edwin. — Modern Socialism and Labor Problems, New York, 
1887. 

Campbell, Helen. — Prisoners of Poverty, New York, 1887; Prisoners of 
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Cannan, Edwin. — Elementary Political Economy, London, 1888. 

Chalmers, M. D. — Local Government, English Citizen Series, London, 1883. 

Clare, J. B. — Philosophy of Wealth, Boston, 1887; Earnings of Capital, 
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American Economic Association, Baltimore, 1889. 

COHN, GuSTAV. — die englisclie Eisenbahnpolitik, Leipzig, 1883 ; die Eiit- 
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CoJiTE, AuGUSTB.— Positive Philosophy, translated from the French, con- 
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Tlie Catechism of Positive Religion, translated, ib., 1883. 

COSSA, LuiGi. — Primi elementi della scienza dehe flnanze, Milan, 1876; 
Guide to tlie Study of Political Economy, translated from the Italian, 
London, 1880; Primi eleraen'i di economia politica, Milan, 1881; Tax- 
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Drummond, Sir Hbmry. — Tropical Africa, New York, 1889. 

Ely, Richard T. — French and German Socialism in Modern Times, New 
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Johns Hopkins University Publications, 1884; The Labor Movement in 

* Including tbe principal economic works of the authors mentioned In the text. 



BlBLIOanAl'HY. 345 

America, New York, ISSC; Prol)k>ms of To-(l;iy, Ni'W York, 1888; 

Tmation in American Slatos unJ Cities, Now York, 1S.SS. 
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Fawcktt, IIknky. — Keoiioinic Position of the ICnjrlish fiiiliorcr, New York, 
181)5; Paiiperism : lis Causes uiid Remedies, Now York, 1871; i'lssays 

imd Lectures on Social and Political Subjects, ih., 1872; Frcio Trade aud 

Protection, ib., 1878; Manual of Political i'lcoiiomj', ib., 1878. 
Fawcett, Milucest G. — Political ICconomy for Uej;inncrs, New York, 1878. 
Ueuhue. IIknuy. — Projrres.-* and Poverty, New York, 1888; Free Trade, li., 

188S; The Land guestioii, ib., 1884; Social Problems, ib., 1888. 
GiDDiNOS, F. H. — Sociolofry and Political Kconomy, Baltimore, American 

Kconomic A.ssociation, 1888; with J. B. Clauk, The Modern Dislrib- 

ntivo I^roccas, Boston, 1888. 
GinE, Chahlks. — Principcs d'economio politique, Paris, 1889. 
GlLBART, J. \V. — The Logic of Banking, London, 18G5; The History, 

Principles, and Practice of Banking, 2 vols., London, 1882. 
Oilman, N. P. — Protit-Sharing between Employer and Employe, Boston, 

1889. 
Gladden, Washington. — Working People and their EmpIoyer.«!, New 

York, 1885; Applied Christianity, ib., 1887; Parish Problems, ib., 1888. 
GosciiE.v, G. J. — Reports and Speeches on Local Taxation, New York, 1872 ; 

Theory and Practice of the Foreign Kxchanges, London, 188G. 
Gronlund, Lawrence. — The Co-operative Commonwealtii, Boston, 1884; 

Ca ira, New York, 1888. 
Hertzka, Theodor. — Wahrung und Handel, Vienna, 187G; die Geaetze der 

socialen Entwickelung, Leipzig, 1886. 
( ^iLDEBR AND,_Bi{UN:Q.r=<iic Natioualokouomie der Gegenwart und Zukunfl, 

Fraiil<YMrt,' 1848. 
HODDEU, EowtN.— The Life and Work of the Seventh Earl of Shaftesbury, 

New York, 1886. 
Holland, T. E. — Klements of Jurisprudence, Now York, 1883. 
UORTO.v, S. Dana. — Silver and Gold. Cincinnati, 1877; Monetary Situation, 

ib., 1878; The Silver Pound and England's Monetary Policy Since the 

Restoration, London, 1888. 
Iherin'g, Rudolph, von. — Zweck im Recht, 2 vols., 2d ed., Berlin, 1885. 
Ingram. J. K. — History of Political Economy, New York, 1888. 
Jame.s, E. J. — Tiio Rcl.ilion of the Modern Municipality to the Gas Supply, 

Americ.in Economic Association, Baltimore, 1887. 
Jevon-s, W. Stanley. — Principles of Science, Treatise of Logic and Scientific 

Metiiod, New York, 1877; Political Economy. Science Primers, ib.. 

1878; Theory of Political Economy, ib., 1879; Studies in Deductive 

Logic, ib., 1880; The SUtte in Relation to Labor, ib.. 1882; Methods of 

Social Reform, ih., 1883; Money and the Meciianism of Exchange, ib., 

1884; Investigations in Currency and Finance, t6., 1884; Elements of 
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CTonks , Rkv RicuARD. — The Distribution of Wealth and the Sources of 

Taxation, London, 1844. 
KiRKUP, Thoma.s. — An Inquiry into Socialism, New York, 1888. 
Kvu'Wi-Karl. — die politische Oekonomie voin geschichtlichen Standpunkte, 

Braunschweig, 188:{; Gold und Credit, Berlin, 1885. 
Lalghlin, J. L. — The Study of Political Economy, New York, 1885; The 

History of Bimetallism in the United States, ib., 1886; Elements of 

Poliiicul Ecouoray, ib., 1888. 



S46 AN INTRODUCTION TO POLITICAL ECONOMY. 

(LAYELEXE,-EMtbE~BE. — Bimetallic Money, translated from the French, New- 
York, 1877; Primitive Property, translated, London, 1878; New- 
Tendencies of Political Economy, translated, New York, 1879; La 
question monetaire en 1880 et en 1881, Bruxelles, 1881 ; Le bimetallisme 
Internationale, Pans, 1881; Elements of Political Economy, translated, 
New York, 1884; Contemporary Socialism, translated, ib., 1885. 

Lbroy-Beaulieu, Paul, — De I'Etat social et intellectual des populations 
ouvrieres et de sou influence sur le taux des salaires, Paris, 1868; La 
question ouvri^re au XIX" siecle, ib., 1871; Le travail des femmes au 
XIX' siecle, z6., 1873 ; Traiie de la science des finances, 2 vols., ib., 
1877; Essai sur la repartition des richesses et sur la tendance a une 
moindre inegalite des conditions, ib., 1880. 

Leslie, T. E. Cliffe. — Land Systems of Ireland, England, and the Conti- 
nent, Loudon, 1870; Essays in Political and Moral Philosophy, Loudon, 
1879. 

List, Friedrich, National System of Political Economy, translated from 
the German, Philadelphia, 1856; London, 1885. 

Lubbock, Sir John.— Prehistoric Time.'^, New York, 1872 ; Origin of Civil- 
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McNeill, George B., ed.— The Labor Movement, the Problem of To-day, 
Boston and New York, 1887. 
AiNEj Sir. Henry S.— Early History of Institutions, New York, 1875; 
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Malthus, T. R.— Definitions in PoHtical Economv, London, 1827; Essay 
on the Principles of Population, London, 1878; Principles of Political 
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Marshall, A. — The Present Position of Economics, New York, 1885. 

Marshall, A. and M. P.— Tho Economics of Industry, London, 1881. 

( Harx, Karl,::— Das Kapital, 2 vols., Hamburg, 1885;" translated by Samuel 
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Q*IlLL,..JoHN Stuart. — Representative Government, New York, 1862; 
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Political Economy, London; 1886. 

Morgan, Lewis H.— The League of the Iroquois, Rochester, 1851; Systems 
of Consanguinity and Affinity of the Human Family, Smithsonian In- 
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Morse, J. T.— Banks and Banking. 2 vols., 3d ed., Boston, 1888. 

MoRSELLi, H. — Suicide, New York, 1882. 

MuLFORD, E. — The Nation, Boston, 1882. 

Newcomb, Simon. — Principles of Political Economy, New York, 1886. 

Patten, S. N.— Premises of Political Economy, Philadelphia, 1885; The 
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Perin, Charles. — De la richesse dans les societes chretiennes, 2 vols., 
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1880; Melanges de pohtique et d'economie, ib., 1883. 



U klAINE 



c 



BIBLIOGRAPHY. 347 

Price, L. L. F. R.— Indtistrinl Pcnco, Now York, 1888. 

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leRre, Leipzig, 1852; Die deutsche Nationalokonomie an der Granz- 
schcide deslGu. 17 Jahrlumderts, j'fc., 18G2; Gcscliiehte der Nalional- 
okonomio in Dcutschland, Munich, 1874; Aussiclilen der Volks- 
wirllischaft aus dcm geschichtliclien Standpunkte, Leipzig, 1878; 
System der Volkswirthschaft, 4 vols.. Stuttgart, 188G ; Yolume I, 
Principles of Political Economy, translated from the German, 2 vols., 
^ New York, 1878. 

Csaj^ jEAX-_BAje.TiSTS:. — Treatise on Political Economy, translated from the 
French, Pl":iiadeli.hia, 1860. 

ScH.iEFFLE, Ai,BERT E. Fr. — Das gesellschaftliche System der mensch- 
lichen Wirlhschaft, Tubingen, 1873; Ban und Leben des Socialen 
Kbrpers, 26., 1878; Encyklopiidie der Staatslchre, ib., 1878; Kapi- 
talismus und Socinlismus, ib., 1878 ; Die aussichlslosigkeic der Social- 
demokratie, ib., 1885. 

ScHOENBERG, GusTAV. — Die sitlliche-religiose Bedeutung der Sozialen Fragea 
Stuttgart, 1876 ; Das Handbuch der Politschen Oekonomie, 2 v<il3. 
2d ed., Tiibingen, 1888. 

SiDGWiCK. H.— Methods of Kthic.<?, New York. 1884; The Scope and Method 
of Economic Science, ib., 1885; History of Ethics, Lcndon, 1886; Piiu- 
ciples of Political Economy, New York, 1888. 

SiMON'Di DE SiSMONDi, J.-C.-L. — De la richesse eommerciale, Geneve, 1803; 

Nouveau Principes d'economio politique, Paris, 1827. 
(Smith, Adam.— Wealth of NaJioiLS. New York, 1888 ; Essays on Moral Sen. 
nrfienls, ib., ; Theory of the Moral Sentiments, ib. 

Smith, Richmond M. — Statistics and Flconomics, Baltimore, American Eco- 
nomic Association. 1888. 
(Spencer, HEitnEUT— Firs t Principles . New York, 1873; Descriptive So- 
biology. 8 vols., ib., 1873-; Social Statics, ib.. 1875; Principles of Biol- 
ogy, 2 vols., 16.. 1874; Essays, MforalTPolitical, a, id rlCsthetic, ib., 1877; 
Principles of Psychology, 2 vols., ib., 1877; Principles of Sociology, 2 
vols., 16., 1882; The Man versus the Slate, ib., 1885. 



348 AN INTR OB UOTION TO POLITICAL ECONOMY. 

Stepniak. — Underground Russia, New York, 1883. 

Taussig, F. W. — Protection to Young Industries. New York, 1884; The 

History of tiie Present Tariff, New York, 1885 ; The Tariff History of 

the United States, New York, 1888. 
Thompson, R. B. — Social Science and National Economy, Philadelphia, 1815 ; 

Elements of Political Economy, ib., 1882; Protection to Home Industry, 

New York, 1886. 
ToTNBEE, A.RNOLD. — The Industrial Revolution, London, 1884. 
Tylor, E. B. — Scone Age, Past and Present, New York, 1874 ; Primitive 

Culture, ib., 1874; Early History of Mankind, ih., 1878; Anthropology, 
, ib., 1888. 
(Wagner, Adolph. — u. Erwin Nassb. — Lehrbuch der politischen Oekonomie, 

7 Bd., Leipzig, 1886. "" — 

"Walker, F. A. — Statistical Atlas of the United States, New York, 1875 ; 

The Wages Question, ib., 1876; Money, Trade, and Industry, ib., 1879; 

Money, ib., 1883 ; Land and Its Rent, Boston, 1883 ; Political Economy, 
^ New York, 1887. 

fe.Ajtp, Lester F.— Dynamic_.Sociology, 2 vols.. New York, 1883. 
Weeks, Joseph D. — Labor Differences and Their Settlement, Society for 

Political Education, New York, 1886. 
Wilson, A. J. — The National Budget: the National Debt, Taxes and 
. Rates, London, 1882. 
(Wilsoji^Daniel. — Preliistoric_ Man, New York, 1876; Anthropology, ib., 

18'85." ' 
Wilson, Woodrow. — Congressional Government, Boston, 1885. 



INDEX. 



INDEX 



Adams, H. n., oit history nnd political 
woiioiiiy, I'iv'. 

AUiwiis, H. ('., (It'ilnition of political econ- 
omy, UHJ ; on public debts, 21)5. 

Adininistnitiou, (actor iu a national ecou- 
oiiiy, 3.'J. 

Affriculliiral slajre, described, 47. 

AiuulRamated Association of Iron aiul 
Steel Workers, introduced sliding scale, 
2i5 t5. 

American Indian, economic condition of, 

Analysts, economic method, 12'^. 

Anarchism, dlstinf^uished from socialism, 
247. 

Anthropology and political economy, 134. 

Aquinas, Thomas, jitMum Arctium and 
Interest, 318 ; on luxury, 154 ; on fair 
price, 183. 

Aristotle, subordinated economics to eth- 
ics, 85 ; on luxury, 154 ; economic Ideas 
of, 315-6. 

Arbitration, 22C; of exchange, 199. 

Artillcial monopolies, 219-51. 

Asceticism, self-sacriflce degenerated, 275. 

Atmosphere, influence upon a national 
economy, 32. 

Avarice, 275. 

IB 

Banks, chief organs for credit-economy, 
51 ; an evidence of the industrial revo- 
lution, 58; national restrictive laws 
upon, not an infringement of liberty, 
72; 201-2. 

Bi'lRlum, Latin monetary union, 192 ; 
Economists, 325. 

Bemis, on wa^es in Industries where 
women and children work, 221-2. 

Bentham, Jeremy, restriction of Inherit- 
ances, .'107. 

B«*quests, taxation of, 307. 

Bible, description of paatoral stage, 45. 



Bill of exchange, described, 197. 
Bimetallism, rJ2-J. 

Bland bill, coinage of silver in U. S., 194. 
Bliiiitschll, Uiiiliatlous on contracts, 88; 

on tendencies of law, 13(5. 
Book credit, 1U8. 
Brotherly love, a motive of economic 

activity, 152. 



Cannan, Edwin, sufferings on account of 
displacements of labor and capital, CO. 

Capital, its new importance a cause of 
economic problems, Gl ; dellned by 
Marx, 03 ; freedom of, with respect to 
loans, 78 ; factor of production defined, 
1C4-5; fixed and circulating, IGG; saved 
by being consumed, IGC; increase of, 
lUG; distinguished from capitalization, 
218-19; formation of, and consumption, 
2G9-71 ; and labor, plan for uniting, 63. 

Capitalization, disliiiguished from Capital, 
218-19. 

Carey, Henry C, argument for protection, 
20r>-6. 

Census estimates of wealth, 147-8. 

Charity, science of, 2G1 ; degenerate, 275. 

Child labor, efTect on earnings of the en- 
tire family, 222 ; laws for lessening evils 
of, 259-GO. 

Christianity, offers the highest conception 
of sociiMy, M; progress of, a cause of 
economic problems, 05; economic ideas 
of, 317-8. 

Circulating capital, IGO. 

Cities, rise of, in the trades and commerce 
stage, 49. 

Civilization, depending on growth of 
higher wants, 70. 

Clearing houses, 201-2. 

Cohn, Gustav, parts of politl<-al economy, 
114 ; historical school in Germany, 321. 

Coinage. See Money. 



352 



INDEX. 



Colbert, mercanttllst, 820. 

Collectivism, 247. 

Combinations, always possible la field of 
natural monopolies, 252. 

Commerce, in economic staa:es, 48: min- 
isters to necessities not to luxuries, as 
formerly, 59. 

"Common," survival of common owner- 
ship, 48. 

Communism, 247-8. 

Competition, advantages of, 83; disad- 
vantages, 83; freedom of, and demand 
and supply, 182 ; in the field of natural 
monopolies, 252. 

Comte, Auguste, the father of sociology, 
16. 

Conrad, Professor, historical school in 
Germany, 324. 

Constitutional limitations, 296. 

Consumers, not different class from pro- 
ducers. 277. 

Consumption, 267-83 ; dilfleulties in treat- 
ment of, 2C8 : defined, 268-9 ; and cap- 
ital formation, 269-71 ; alleged present, 
of future products, 271-2; wasteful, 
276 ; control of, 27t ; analysis of, 282. 

Contract, freedom of, with respect to labor, 
7<J. 

Co-operation, coercive, and voluntary, 
236-9. 

Copyrights, 249. 

Corporations, one aspect of the industrial 
revolution, 58; freedom in the establish- 
ment of, 79 ; when suitable for public 
management, 261. 

Cossa, Professor, historical school in Italy, 
824. 

Cost of production, influencing demand 
and supply, 181. 

Craddock, Charles Egbert, description of 
isolated economic life, 29. 

Craft guilds, a method of uniting labor 
and capital, 62. 

Credit, 196-203; advantages of, 198-200; 
evils of, 200. 

Credit economy described, 5L 

Cnses, 278-9. 

Cromwell, mercantilist, 320. 

Custom, formerly a powerful factor in 
maintaining industrial peace, 63. 

Customs duties, 305. 

Cusumano, Professor, historical school in 
Italy, 324. 

Cyclops, isolated economic Ufa, 20. 



XD 

Debts, public, 294-6. 

Deductive method described, 116 ; insuf- 
ficiency of, 120. 

Deductive school,representatives of, 321-3. 

Demand and supply, 179-83. 

Democracy, industrial, 236. 

Dependence of man upon man Increases 
with progress of industrial civili2;ation, 
26. 

Description, part of economic method, 121. 

Deterioration of the masses, absolute and 
relative, 69. 

Direct taxes, 306. 

Distribution, 213-63 ; division of products 
depends upon industrial strength, 171- 
2 ; law of, depends on rate of increase 
of factors of production, 223-4. 

Distributive co-operation, 237. 

Distributive justice, aim of socialism, 
241-2. 

Division of products. See Distribution, 
171; of labor, advantages and disadvan- 
tages and remedies, 172-4. 

Draft, described, 197. 

Drummond, on the individualism of the 
natives of the heart of Africa, 20. 

Economic activity, motives of, 151-9. 

Economic evils, social. 84. 

Economic freedom. See Freedom. 

Economic goods, defined, 145. 

Economic laws, 124-127. 

Economic life, isolated and social, 19 ; da- 
fined, 34 : not for self, 26 ; stages in de- 
velopment of, 39; the different stages 
not exclusive, 51 ; recent development 
of, 55 ; and ethics, 85 ; and the state, 87. 
See also National Economy. 

Economic methods, 116-123. 

Economic problems. See Problems. 

Economic progress, ideals of, 86. 

Economics, evolution of, 311-326. 

Economists, not confined to the material 
life, 25. 

Economy. See Economic Life. 

Education, value of labor organizations, 
233; compulsory, coupled with laws 
against child labor, 259 ; cause of in- 
creas?d government expenditures. 291 : 
expenditures for, in Russia and in 
Switzerland, 301. 



I.VDK.V. 



353 



Elirtit liDiir clay, ii prolilcm KrowluR out i>f 
tliu Iihlii5lrlul ruvuliiiloii, 5i). 

EltMiifutury viilue, 1?M. 

EntffI, luw of fuiiilly t'xiu'iutlture, 281-2: 
bistork-ul solioiil In (icniiuriy, ''Ut. 

Enk'lanil, outiiparlson of aKrlcuItunil pop- 
ulation with that of Krance, '-U : restric- 
tions nu labor, 75 ; lauiltnl property, 78; 
corihirailou laws, 70 ; restrictions ou 
forelif u I'oniiuerce abandoned, 82 ; bl- 
inetalllsiu, 1U5. Stn; also Ureat Britain. 

Eutn-preneur, (uiietloiis of, 170 1 ; and 
prollis of uiuuopoUes, 21J-20. See also 
ProDts. 

Ethk-dl alms, an essential part of eco 
nonile activity, 101. 

Ethical standards. See Ethics. 

Ethics, higher standards of, a cause of 
economic problems, 65 ; and political 
economy, 67; and the economic life of 
nations. So; and political economy, 132; 
and luxury. 275; regulated the economic 
life of the Orient, 314. 

Exchanne, usual term for transfer of 
goods, 177 : arbitration of, l'J9. 

Excise taxes, 305. 

Expenditures, family, 281-2; government. 
Increase In, 289-92. 

Factory Inspection, 226. 

Fair price. In middle ages, 132; In modern 

laws, 13-'-.J; 18:3. 
Family, the first social unit, 20 ; true 

social unit in economic discussions, 201; 

exiM-nditures of, 281-2. 
Farmers' organizations, 230. 
Fawcett, I'rofessor, Ideal of econoralc 

progress, 80. 
Fawcett, Mllllcent, definition of political 

economy, 10.j. 
Ferguson, Adam, on luxury, 154. 
Flchte, assistance to the economist, 131. 
Finance a part of political economy, LV) ; 

defined, 287-8; 287-308; source of eco- 

nondc Inquiry, 31S. 
Fishing tribes described, +1. 
Fixed capital. 100. 
Fluctuations In the volume of money, 

190-2. 
Forestry, govemmeDt enterprise, 90. 
Form value, 178. 
FYance, comparlsoD of agricultural popu- 



lation with that of England, 33; re- 
strictions on labor, 77; Latin monetary 
union, 192; success of co-operation, 2:17. 

Franchises, those wlio receive them bound 
to render service to the public, 28. 

Fraser, Dr. James, on obllKalions of the 
rich to personal service, 241. 

Frederick tin; Great, mercantilist, 320. 

Freedom, of the uncivilised man, illusory, 
29; relations of modern economic life 
to, 71 ; defined, 73 ; of labor, 74 ; of 
person, 74 ; of movement and acqui- 
sition, 74 ; of landed property, 77 ; of 
capital with respect to loans, 78; in 
the establishment of enterprises, 79 ; of 
the market, 82 ; of competition, and 
demand and supply, 182. 

Freemantle, Canon, on rights of pnvato 
property, 299. 

Free Trade, 204-10. 

Or 

George, Henry, land nationalization, 296- 
7; private property and taxation, 300. 

Germany, restrictions on labor, 77 ; cor- 
poration laws, 79 ; restrictions on rate 
of Interest, 79 ; demonetization of silver, 
192; productive property and public 
debts, 295. 

Glddlngs, social ideals in economic life, 
102. 

Gide, Professor, French economist, 325. 

Gifts, source of public revenue, 294. 

Godin, profit-sharing establishment In 
Guise, France. 2:36. 

Gold. See Money. 

Government regulations, lncrea.se in, 72 ; 
and democracy, 89; some of the func- 
tions of, 90; and forestry, 90 ; prominent 
In capital-formation, 270-1 ; should be 
a model employer, 289 : expenditures, 
general Increase In, 289-92 ; a partner 
In production, .300-1. See also State. 

Great Britain, expenditure of, 290. 

" Greenbacks," 189. 

Greeks, reasons for having no complete 
political economy, 312-3; economic 
Ideas of, 315-6. 

Guilds, mediaeval, described, 168-9. 

Henry, Professor, refused to take out 
patent on telegraph, 2.50. 

Hewitt, Hon. A. S., recognized the validity 
of the law that wages depend on stand- 
ard of life, 222. 



354 



INDEX. 



Hildebrand, historical method, 118; in- 
ductive method, 323. 

Historical school, rise of, and description, 
118-123 ; representatives of, 323-6. 

History, necessity of its study in political 
economy, 37; and political economy, 131; 
and political economy, 311-2. 

Hunting and Ashing stage, described, 42. 

Hygiene and political economy, 131. 



Ideals, for economic progress, 86 ; impor- 
tance of, in study of political economy, 
101. 

Idleness, involuntary, 260-1. 

Immigration, limitations on freedom of 
movement, 76. 

Improvement, possibility of, for the mass- 
es, a cause of economic problems, 65. 

Improvement, displacement of labor and 
capital, resistance to, 60, 

Income tax, 306-7. 

Indian. See American Indian. 

Indirect taxes, 305-6. 

Individual, economic activity of the, 32 ; 
enterprise of, necessary, 89; and society, 
distinction in political economy, 146. 

Individual and social capital distin- 
guished, 165. 

Individual and social cost, 182. 

Inductive method described, 116. 

Industrial democracy, 236. 

Industrial society, defined, 50. 

Industrial stage, described, 49. 

Industrial revolution, cause of economic 
problems, 55, 

Inflation, 188. 

Inheritances, taxation of. 307. 

Insurance, control over consumption, 280. 

Instruments of credit, 197. 

Intemperance, 261. 

Interest, restrictions on rate of, 78; defined, 
216-17 ; ideas of Aristotle, 316. 

Internal revenue, taxes, 305. 

International law and political economy, 
138. 

Italy, Latin monetary union, 192; econo- 
mists, 324. 

Knies, historical method, 118; definition 

of credit, 196 ; historical method, 323. 
Knights of Labor, 228. 



Labor, three general historical conditions 
of, 35 ; and the capitalistic mode of pro- 
duction, 62; and capita], plans for unit- 
ing, 63 ; factor of production, 162 ; and 
protection, 207-8 ; organizations, nearly 
all, temperance societies, 232; organi- 
zations, educational value of, 233 ; 
growth of, 229; natural growth, 230; 
opposition to, 230; labor problems, 
source of economic inquiry, 313. 
See also Child Labor and Woman 
Labor. 

Laissez-faire, 108, 125 doctrine of the 
Physiocrats and Adam Smith, 321. 

Land nationalization and municipallza- 
lion, 296-8. 

Landed property, freedom of transfers, 77, 

Lane, Jonathan A., value of personal 
property and real estate in Boston, 
306. 

Lampertico, Professor, historical school la 
Italy, 324. 

Latin monetary union, 192. 

Laveleye, on the evolution of property, 37; 
definition of political economy, 110 ; on 
luxury, 154 ; the best order for human 
affairs, 263 ; Belgian economist, 325. 

Law, evolution of, 36 ; and political econ- 
omy, 134-9. 

Laws, restrictive, may increase real free- 
dom, 72 ; no longer special, but general, 
73. 

Leslie, introduced German ideas Into En- 
gland, 324. 

Lexis, Professor, historical school in Ger- 
many, 324. 

Legislation, a factor in a national econo- 
my, 33. 

Liquors, consumed In the United States, 
155-8. 

Lotze, Hermann, assistance to the econ- 
omist, 131. 

Louis XIV., on royal expenditures, 272. 

Lowell, J. R., definition of political econ- 
omy, 94. 

Lubbock, Sir John, on the Individualism 
of savages, 20 ; the true savage neither 
free nor noble, 40. 

Luxury, defined, 153; public and private, 
154 ; 272-6. 

LuzzatI, Professor, historical school In 
Italy, 324, 



JXDEX. 



855 



Maine, Sir Honry S., o > the chnnjre In lofral 
coneoptlons, 80 ; civilized muii not con- 
st'loiu i)f lt').'nl riik'.s, 40; oil coiuinon 
priifMirty In Iiind In pastoral stajfc, -Jti; 
on proporty In vllla>(0 (.•omniunliti'.s, -I" ; 
" sharp practice and lianl bargalnlnK." 
the market law, G(J ; obedience to law In 
civilized nations, 71 ; economic Inca- 
pacity of lawyers, VM; ecouoiiUc classes 
In India, 31-1. 

Maltlius, cited, 115 ; on population, 102-4 ; 
The Theory of Population, 3iJ. 

Malthuslaiilsm, lG'i-1. 

Man, his activity a chief factor In a na- 
tional economy, *i; original and ac- 
quired powers, 145. 

Margin of cultivation, deflned, 215. 

Market, freedom of, 80; theory of the, 278. 

Marshall, Professor, position between de- 
ductive and historical school, 324. 

Marx, deflidtlon of capital, (« ; cited, 115. 

Massachusetts, Report of Bureau of Statls- 
ilca of labor on family e-Kpeudlture, 282. 

Mercantilists, conception of political econ- 
omy, 109 ; economic ideas of, 320-1. 

Methods. See Economic Methods, 117. 

Middle Ages, reasons for having no com- 
plete political economy, 313 ; economic 
Ideas of. 317-8. 

Mill, John Stuart, on limitations on con- 
tracts, 88; cited, 100; deOnitionof polit- 
ical economy, 106; parts of political 
economy, 114; on economic incapacity 
of lawyers, 136 ; man's work in creating 
utilities, 143; deflnition of credit, 196; 
public utility the basis of private prop- 
erty, 299 ; follower of Ricardo, 322-3. 

Milling, an example of the Industrial rev- 
olution, .'J7. 

Money, the amount needed, 189-90 ; ideas 
of Aristotle, 316. 

Money-economy, described, 51. 

Monometallism, 192. 

Monopolies, profits of, 219-20; artlOclal, 
249-51 ; artinclal will be overthrown by 
public ownership of natural monopolies, 
2.57 ; natural, restriction on establish- 
ment of, 80; natural, characteristics of, 
251-2 ; natural, advantages claimed for 
public ownership, 2.">.3 8. 

Montesquieu, cited, 135; on expenditures 
of the ricb, 278. 



Mosalcal Code, prohibiUi alienation of land, 

78 ; prohibits usury, 78. 

Mollvis of economic activity, 151-9. 

Mulford, dcUnlilon of the Stale, 30; free- 
dom realized only under government, 
71. 

Mun, Thomas, mercantilist, 320. 

Municipalization of land, 290-8. 

nsr. 

Nasse, Profes.sor, historical school in Ger- 
many, 324. 

National economy, defined, 22; political 
Independence the ba.sls of, 29 ; the two 
great factors In a, 81 ; a historical prod- 
uct, :k. 

National Farmers' Alliance, 230. 

Nationalization of land, 290-8. 

Nature, factor of production, lGO-1. 

Natural law and political economy, 108. 

Natural laws, what are they ? 124. 

Natural monopolies. See Monopolies. 

New York, increase In expenditures, 290. 



Observation, part of economic method, 

121. 
Ohio, increase in expenditures, 290. 
Opium habit, 158. 

Orient, the, economic ideas of. 314-5. 
Over-production aud under-consumptlon, 

149 ; really under-production, 278. 



Panics, 278-9. 

Paper money, 187-9 ; is it safe ? 188-9. 
Parsimony, public, evil results of, 30.3-5. 
Past and present, mibleading comparisons 

between, 24. 
Pastoral stage described, 44. 
Patents, 249-51. 
Patriotism, a motive of economic activity, 

1.52. 
Patrons of husbandry, 230. 
Pauperism, 261. 
Peel, Sir Robert, introduced police force, 

292. 
Perin, Professor, Belgian economist, 325. 
Philosophy and political economy, 130. 
Physiocrats, first scientific economists, 

312 : economic Ideas of, 321, 
Physiology and political economy, 131. 



356 



MDEZ. 



Piece work, 225. 

Place value, 178. 

Plato, subordiuated economics to ethics, 
85; on luxury, 154; economicideas of ,315. 

Pliny, economic ideas of, 316. 

Political economy a part of sociology, 13 ; 
basis of otiier life-spheres, 16 ; the best 
introduction to sociology, 17 ; necessity 
of historical study, 37 ; midway between 
natural and mental and moral sciences, 
37 ; has shown possibility of improve- 
ment for the masses, 65 ; and ethics, 67 
derivations of the term, 94 ; defined, 95 
simpler than private economies, 97 
regards permanent interests, 100 ; both 
a dynamic and a static science, 100 ; is it 
a science? 103; defined, 94-1 10; main parts 
of, 111-115; a useful science, 128-30; and 
philosophy, 130 ; and physiology and 
hygiene, 131 ; and history, 131 ; and 
ethics, 133 : and religion, 133 ; and an- 
thropology, 134; and law, 134-9; and his- 
tory, 311-12; in Germany, 333-4; in Eng- 
land, 324 ; in France, 324-5; in Italy, 324; 
In Belgium, 325 ; in United States, 325. 

Political freedom. See Freedom. 

Political independence, the basis of a 
national economy, 29. 

Politics, purification of, secured by public 
ownership of natural monopolies, 256. 

Popular suffrage. See Suffrage, 262. 

Population, growth of, 162-4. 

Potter, Bishop, extravagance connected 
with funerals, 280. 

Price, 79. 

Private business, confusion of public and, 
61. 

Private and public economy, distinction 
between, 96. 

Private and public responsibilities, 92. 

Private welfare, not Identical with public, 
98. 

Problem of the working-day, effect of the 
Industrial revolution, 59; economic prob- 
lems, not local, 55 ; social, 259-63. 

Prodigality, 273-fi. 

Producers, not different class from con- 
sumers, 277. 

Production, elements often overlooked in 
statistical estimates, 32; organization of 
factors, 168-74; and distribution not 
sharply separated, 213; disproportion- 
ate, cause of crises, 278 ; government a 
partner in, 300-1. 



Productive co-operation, 237. 

Productive domains, source of govern- 
ment revenue, 294. 

Productivity, increase of, in modern times, 
174. 

Profits, defined, 217-18; of monopolies, 
319-20. 

Profit-sharing in United States, 235; In 
France, 236. 

Promissory notes described, 197. 

Property, historical changes in the con- 
ditions of, 36 ; freedom of landed, 77 ; 
deflned, 214-15 ; private, limitations on, 
299. 

Protectionism, 204-10; diversifled-natural- 
industry argument, 204 ; infant-indus- 
try-argument, 204; statistics, 208; an 
historical growth, 309. 

Prussia, free tradu in land, 78. 

Public business, confusion of private and, 
61. 

Public debts, 294-6. 

Public finance. See Finance. 

Public luxury, when justifiable, 274-5. 

Public parsimony, evil results of, 303-5. 

Public and private economy, distinction 
between, 96. 

Public and private responsibilities, 92. 

Public prosperity, increased by public 
ownership of natural monopolies, 253-4, 

Public resources, better utilization of, 308. 

Public spirit, a motive of economic activ- 
ity, 152. 

Public welfare not identical with private, 
98. 

Reform, social, 245. 

Reformation, Protestant, effect on eco- 
nomic inquiry, 313. 

Reitzenstein, Baron von, historical school 
in Germany, 334. 

Religion, progress of, a cause of economic 
problems, 65; and political economy, 
133 : a motive of economic activity, 152. 

Remedies for evils of economic freedom, 
84 ; for evils of minute division of labor, 
174; for social evils, 359-63. 

Rent, deflned, 216; land nationalization, 
396-7. 

Restrictions, on labor, 77; on the establish- 
ment of natural monopolies, 80. 

Restrictive laws may increase real free- 
dom, 72. 



ISDEX. 



857 



RfrcntiM of ffovprnnicnt rnmpnrcil wlili 
exiHinilltiin.-8, 8ttJ; poruianuui sources 
of. -.IIH-*. 

Rti-anio, David, ecouomlc doctrines of, 
3£i. 

Rlcbes, sudden, cause of economic prob- 
liMus on. 

Roifcrs, Profi'!<,sor J. F.. T.. on hilH)r or- 
(ninlaitlons in Knifland, ill. 

Romans, n-iisons for having no coniplcto 
political economy, 813 ; economic IdciiM 
of, 310-7. 

Roman law, on property, 214 ; Important 
In economic studies, -SIT. 

Roman luxury, '.T.'!. 

Rosclier, Wllllaui, parts of political econ- 
omy, 112; bblurlcal methoti, IIM; dell- 
nitlon of credit. IIHJ; on development 
of economic Ideas, 318-9; biatorlcal 
methoti, .32.3. 

Rilmlln, Pnfessor, historical school in 
Germany, 334. 



Sax, Professor, historical whool In Ger- 
many, .324. 

Say, JeanBaptisto, the theory of the 
market. 278. 

Schanie, Profcs.sor Albert, German sociolo- 
gist, 17; ideal of economic projrrcM, 8(5; 
historical school In Germany, 321. 

Bcheel, ron. Professor, deflnltlon of politi- 
cal economy, U6-7 ; historical school in 
Germany, .321. 

Bchonberji, p<7litlcal economy developed 
for promoting the well-beltif? of society, 
65; parts of political economy, 112; 
historical school in Germany, .324. 

Self-interest, not a constant meiusunihle 
force, 12.5 ; a motive of economic activ- 
ity. 1.51. 

Serfdom, historical condition of labor, 35. 

Serra, mercantilist, 320. 

Shaw, Dr. Albert, on co-operative coopers 
of Minneapolis, 2.38. 

SldKwick, Professor, on the distinctive 
l4"achlngs of Christianity, 317-S; posi- 
tion between historical and deductive 
school. 334. 

Silver question and bimetallism, 103. 

Silver. See Money. 

Si.«inondl, deflnltlon of political economy, 
107. 



.■^IftTery, historical condition of labor, 8.V 
Sliding scale introduced In Iron industry, 

335-0. 
Smith, Adam, uw« "manufacturers" for 

skilled artlMins, 03 ; laws of oettleraenta 

oppri'sslve Ui the poor, 7.5 ; cited, 77 ; on 

causes of (lliTerences of wages, 224-5; 

}Vrallh of \,ili.iiiK, .Wl. 
Social and Individual capital dlHtinguisbed, 

I(K5. 
Social and individual cost, 182. 
Si>clal evils, also economic, 84. 
Social problems. See Problems. 
So<'lal Reform, 345. 
Socialism, 340-8; strength of, 243-4; 

weaknisis of, 345-0. 
Sot'iallsts, do not attack capital In Itsi-lf, 

03 ; chanu't«r of, 240-7. 
Society, an organism, 14; departments of 

social life, 15; 8t)clely and Individual, 

distinction in political economy, 146. 
Sociology includes politiciil economy, 1 J ; 

deOned, 14 ; present condition of the 

science, 10 ; political economy the best 

introduction to, 17. 
Soli, influence upon a national economy.Sl. 
Spenc«r, Herbert. English sociologist, 17. 
Standard of Comfort, defined, 221-3. 
Standard of life defined, 221-3. 
State, defined, .30; and economic life, 87. 

See also Government. 
State action, utility the criterion of, 87. 
State ownership of natural monopolies, 

advantages of, 2.%3-8. 
Statistical method, 117. 
Statistics, in arguments for and against 

protection, 305). 
Steuart, Sir James, definition of political 

economy, 109 ; mercantilist, .320. 
Strikes, success and failure of, 333. 
Sub-treasury system, 288-9. 
SulTrage, restriction of, not a remedy for 

.social evils, 202-3. 
Supply and demand, 170-83. 
Switzerland proposes International factory 

legislation, 138: Latin monetary union, 

92. 



Tariff, 204-10. 

Tax, direct, 300. 

Taxation, 399-.30S; not an evil, 301 ; In- 
crca.ses with freedom, 301 ; increa-si-a 
production, 3t>2; belter adju.stmeut of 



S58 



INDEX. 



burdens, 305-6 ; bette" utilization of 
public resources, 308. 

Taxes, indirect, 305 ; excise, 305. 

Temperance, in labor organizations, 233. 

Territory, a chief factor in a national 
economy, 31. 

Thucydides, action and reaction the ex- 
planation of historical occurrences, 33. 

Tobacco, consumed in the United States, 
158. 

Tocquerille, de,American intelligence and 
division of labor, 174. 

Toynbee, representative of historical 
school in England, 324. 

Trades and commerce stage, described, 48. 

Trades unions, 228. 

" Tramp lavt's," 75. 

Transfers of goods, economic stages of, 50; 
177-210. 

Truck economy described, 50. 

Trusts, a step in the evolution of industry, 
58 ; when suitable for public manage- 
ment, 261. 

XJ 

TJnder-consumption and overproduction, 
149. 

Under-production cause of crises, 278. 

United States, restrictions on labor, 77 ; 
usury laws, 79 ; corporation laws, 79 ; 
freedom of domestic trade, 82 ; Increase 
in federal expenditures, 290. 

Usury laws, 78. 

Utilities, defined, 143-5. 

Utility, criterion of State action, 87 : con- 
crete, defined, 269 ; pure abstract, de- 
fined, 269. 



Value, defined, 177-8 ; in use and in ex- 
change, 178; elepaentary, form, plaoe, 
178-9. 

Voltaire, on lawyers, 156. 



Wages, of superintendence, 217 ; and the 
wage system, 221-7; causes of differ- 
ences of, 224-5. 

Wagner, Professor, economic ideal, 87 ; 
parts of political economy, 112 ; histor- 
ical school in Germany, 324. 

Walker, cited, 115 ; definition of money, 
184 ; on a gradual increase of money, 
191. 

Wants, and the growth of civilization, 70 ; 
desirable and undesirable, 153. 

Ward, Lester F., American sociologist, 
17 ; cited, 101, 

Wasteful consumption, 276-7. 

Water privileges, infiuence upon a na- 
tional econony, 31. 

Wealth, defined, 146. 

Women, labor of, often overlooked, 22 ; 
labor of, effect on wages In general, 223. 



Xenophon, economic ideas of, 316. 



Young, Arthur, on property, 867. 



